Suppose you have been appointed as afinancial advisor for an upcoming business in Oman which requires OMR 90,000 as Capital. Your job is to organize the finance required for the company from different types of available finance. Explain in detail how much amount of funds you will take from each type of finance source and why. Discuss in detail which type of finance is good for the company. Note / solve it by using the Financial Institutions &

Suppose you have been appointed as afinancial advisor for an upcoming business in Oman which requires OMR 90,000 as Capital. Your job is to organize the finance required for the company from different types of available finance. Explain in detail how much amount of funds you will take from each type of finance source and why. Discuss in detail which type of finance is good for the company. Note / solve it by using the Financial Institutions &

ECON MICRO

5th Edition

ISBN:9781337000536

Author:William A. McEachern

Publisher:William A. McEachern

Chapter13: Capital, Interest, Entrepreneurship, And Corporate Finance

Section: Chapter Questions

Problem 4.8P

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(1) Do you think you currently have the disciplineneeded to control your spending in order to free upcash for regular investing? If not, what changes couldyou make? (2) If someone gave you a “hot tip” on astock, how would you go about researching theopportunity before making an investment decision?
Suppose you are in charge of the financial departmentof your company and you have to decide whether toborrow short or long term. Checking the news, yourealize that the government is about to engage in amajor infrastructure plan in the near future. Predictwhat will happen to interest rates. Will you advise borrowing short or long term?
As and example of a possible investment restriction, an insurer mah only be allowed to invest up to 20 percent of its assets in common stock. What penalty is imposed upon the insurer that invests 30 percent of available assets in common stock?A. The additional 10 percent must be disposed of by year endB. The state regulators would impose a 10 percent fine on the insurer.C. The additional 10 percent would be a nonadmitted asset.D. The additional 10 percent would only be listed at cost.
Bond A pays $8,000 in 20 years. Bond B pays $8,000in 40 years. (To keep things simple, assume that theseare zero-coupon bonds, meaning the $8,000 is theonly payment the bondholder receives.)a. If the interest rate is 3.5 percent, what is the valueof each bond today? Which bond is worth more?Why? (Hint: You can use a calculator, but the ruleof 70 should make the calculation easy.)b. If the interest rate increases to 7 percent, what isthe value of each bond? Which bond has a largerpercentage change in value?c. Based on the example above, complete the twoblanks in this sentence: “The value of a bond[rises/falls] when the interest rate increases,and bonds with a longer time to maturity are[more/less] sensitive to changes in the interestrate.”
Seung’s utility function is given by U = ln(C), where C is consumption. She makes $30,000 per year and enjoy jumping out of airplanes. There's a 5% chance that in the next year, she will break both legs, incur medical costs of $15,000, and lose an additional $5,000 from missing work. (a) What is Seung’s expected utility without insurance? (b) Suppose Seung can buy insurance that will cover the medical expenses but not the forgone part of her salary. How much would an actuarially fair policy cost, and what is her expected utility if she buys it? (c) Suppose Seung can buy insurance that will cover her medical expenses and forgone salary. How much would such a policy cost if it's actuarially fair, and what is her expected utility if she buys it?
The Bangladesh Bank has created additional money worth Tk70,794 crore through variousrefinance schemes and easing regulatory requirements after the Covid-19 outbreak in March forstimulating demand to revive the declining economy. (link:https://tbsnews.net/economy/banking/bangladesh-bank-creates-money-worth-over-tk70000cr-revive-economy-76435?fbclid=IwAR108OXKcbXq6JjZj6v9FbULrDtys_QsZySUTKeAmauoqTjppgnLqU89muw#.Xq5kdXhgRqq.facebook).Do you think creating this additional money will lead to inflation? What type of inflation,demand-induced or supply-induced? Do you think it will be continued inflation? Why? Draw arelevant diagram to explain your answer.
Assume that an individual expects to work for 40 years andthen retire with a life expectancy of an additional 20 years.Suppose also that the individual’s earnings increase at a rateof 3 percent per year and that the interest rate is also 3 percent(the overall price level is constant in this problem). What(constant) fraction of income must the individual save ineach working year to be able to finance a level of retirementincome equal to 60 percent of earnings in the year just priorto retirement?
The Bangladesh Bank has created additional money worth Tk70,794 crore through various refinanceschemes and easing regulatory requirements after the Covid-19 outbreak in March for stimulatingdemand to revive the declining economy (link: https://tbsnews.net/economy/banking/bangladesh-bank-creates-money-worth-over-tk70000cr-revive-economy-76435?fbclid=IwAR108OXKcbXq6JjZj6v9FbULrDtys_QsZySUTKeAmauoqTjppgnLqU89muw#.Xq5kdXhgRqq.facebook) What type of monetary policy is this? Expansionary or contractionary? Draw a diagram toexplain your answer.
4. Ted Baxter runs a small, very stable newspaper company insouthern Oregon. The paper has been in business for 25 years.The total value of the firm’s capital stock is $1 million, which Tedowns outright. This year the firm earned a total of $250,000after out-of-pocket expenses. Without taking the opportunitycost of capital into account, this means that Ted is earning a25 percent return on his capital. Suppose that risk-free bondsare currently paying a rate of 10 percent to those who buy them.d. How much excess profit is Ted earning?
4. Ted Baxter runs a small, very stable newspaper company insouthern Oregon. The paper has been in business for 25 years.The total value of the firm’s capital stock is $1 million, which Tedowns outright. This year the firm earned a total of $250,000after out-of-pocket expenses. Without taking the opportunitycost of capital into account, this means that Ted is earning a25 percent return on his capital. Suppose that risk-free bondsare currently paying a rate of 10 percent to those who buy them.a. What is meant by the “opportunity cost of capital”?b. Explain why opportunity costs are “real” costs even thoughthey do not necessarily involve out-of-pocket expenses. c. What is the opportunity cost of Ted’s capital?d. How much excess profit is Ted earning?
Using the following data, calculate the equilibrium interest rate Y=7,000G=4000T=2,000C=150+0.75(Y-T)I=1,000-50rPublic Savings = -2000Private savings = 1100National Savings = -900
When company executives buy and sell stock basedon private information they obtain as part of theirjobs, they arc engaged in insider lmding.:t Give an example of inside information that mi~;htbe useful for buying or selling stock.h. "rho,::,.. who trnriP "'tnrh hMM nn in"irlPinformation usuaUy cam very high rates ofreturn. Docs this fact violate the efficient marketshypothesis?c. Insider trading is illegal. Why do you supposethat is?