Chapter 4, Problem 2ADIC

Consider the information below relating to the monthly rates of return for two companies X and Y over a period of 4 months:  Y  2                                                                                                        xRate of return                 yRate of Return   Date  Month 1  -4.76  -4.75  Month 2  5.34  7.65  Month 3  12.09  6.98  Month 4  -2.98  9.65    a) If a firm increases its financial risk by selling a large bond issue that increases its financial leverage explain this assumption? Also what is the relationship between risk and return. Explain with examples.

UANG Financials is quite certain that interest rates are going to decrease next month.  How should the bank manager adjust the bank’s maturity gap to increase its equity value when interest rates decrease ? Group of answer choices The bank should set its maturity gap to a positive position. In this case, as rates decrease, market value of assets will increase by less than the increase in market value of liabilities. The bank should set its maturity gap to a negative position. In this case, as rates decrease, market value of assets will decrease by less than the decrease in market value of liabilities. The bank should set its maturity gap to a negative position. In this case, as rates decrease, market value of assets will decrease by more than the decrease in market value of liabilities. The bank should set its maturity gap to a positive position. In this case, as rates decrease, market value of assets will increase by more than the increase in market value of…

Relation between Current Ration and Quick Ration. A firm has experienced a decrease in its current ratio but an increase in its quick ratio during last three years. What is the likely explanation for these results?