The principle of gearing 2. Why debt is cheaper than equity 3. What the effect will be on the risk if more debt than equity is used as a source of finance
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Explain the following:
1. The principle of gearing
2. Why debt is cheaper than equity
3. What the effect will be on the risk if more debt than equity is used as a source of finance
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- Consider the model, C = N(d1)St − N(d2)Ke−rt, where d1 =[ln st/K+ (r +σ2/2) t ] /σ√t and d2 = d1 − σ√t. State the above model and explain the importance of the model in mathematics of finance.A3) Finance Discuss why the MIRR is a better measurement than the IRR.High-risk High return is one of the laws in finance, what does that law really mean? Is there a way of breaking up this law? Explain?
- Can someone give an example or scenario about the following: 1. Capital Asset Pricing Model2. Market Risk premium3. Risk free rate4. Security market line5. Systematic riskWhat is behavioral finance? What are the implications of behavioral finance formarket efficiency?Assume that the risk-free rate increases, but the market risk premium remains constant. What impact would this have on the cost of debt? What impact would it have on the cost of equity? How should the capital structure weights are used to calculate the WACC be determined?
- . Suppose interest rates are increasing enough that it can be modeled with r →∞.(a) What is the value of a Call?(b) What is the value of a Put?(c) Explain both answers in terms of finance.Debt allows an economy to appear very large but debt also creates more ____ in an economy. Inevitability Surety Certainty Risk BusinessDiscuss the importance of market efficiency, and explain why some markets are more efficient than others. Develop a simple understanding of behavioral finance.
- The supply and demand for loans will increase when capital becomes more productive. Select one: True FalseIn a few sentences, answer the following question as completely as you can. Why should financial decision makers obtain a good estimate of a firm’s cost of capital? What are the consequences of using a discount rate that is higher or lower than a firm’s true required return?Which of the following statements are CORRECT? Check all that apply: The aftertax cost of debt decreases when the market price of a bond increases. A decrease in a firm's WACC will increase the attractiveness of the firm's investment options. Cost of capital is also known as the minimum expected or required return an investment must offer to be attractive.