Problem_Set__4_Solutions

Banks use gap analysis to measure interest rate risk in their balance sheets. If firm XYZ is said to have a positive gap, this means: Group of answer choices C. Rate-sensitive assets exceed rate-sensitive liabilities B. Long-term assets are funded with short-term liabilities D. Rate-sensitive assets equal rate-sensitive liabilities A. Liabilities reprice before assets

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Which of the following businesses are most exposed to interest rate risk? *       A. A company with a high equity to debt ratio       B. A company with a large amount of floating rate debt       C. An al-equity company       D. An investment company with an investment portfolio that matches its investment horizon.

Select all that are true with respect to the cost of debt. Group of answer choices it is the return the firm needs to earn overall to satisfy all investors It is the rate the debt holders demand given the risk they face as debt holders Can be estimated using CAPM Cannot be estimated using CAPM because CAPM is used for estimating the cost of equity Is always equal to the YTM on a company's existing bonds Is lower than the YTM on a company's existing debt if there is default risk Can be proxied by the YTM on a company's existing debt if the debt is risk free       Flag question: Question 7

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FINANCE1A 3rd Question

GE MINDTAP Q Search this course jian 1 naining: 1:57:34 Save Is Which of the following statements is CORRECT, other things held constant? O a. If expected inflation increases, interest rates are likely to increase. O b. Interest rates on all debt securities tend to rise during recessions because recessions increase the possibility of bankruptcy, hence the riskiness of all debt securities. O c. If companies have fewer good investment opportunities, interest rates are likely to increase. O d. Interest rates on long-term bonds are more volatile than rates on short-term debt securities like T-bills. O e. If individuals increase their savings rate, interest rates are likely to increase. e here to search IN

Which liquidity risk measurement strategy is best for a financial institution to take when is unable to satisfy its current liabilities? a.All of the above. b.Liquidity Index. c.Peer group ratio comparisons. d.Financing gap and financing requirement.

Having longer-maturity assets than liabilities causes banks to bear which of the following risks? I. Interest rate risk II. Liquidity risk III. Credit risk a. I only b. I and II only c. I and III only d. II and III only e. I, II, and III Clear my choice

Question 1 Fill the parts in the above table that are shaded in yellow. You will notice that there are nineline items.  Question 2Using the data generated in the previous question (Question 1);a) Plot the Security Market Line (SML) b) Superimpose the CAPM’s required return on the SML c) Indicate which investments will plot on, above and below the SML? d) If an investment’s expected return (mean return) does not plot on the SML, what doesit show? Identify undervalued/overvalued investments from the graph

6.  Bonds and stocks are two financial products. Prepare a briefing note on these two financial products that are the core offerings of a financial market. Provide a comparison of these products. What characteristics of bonds and stocks explain the valuation strategy of each of these financial products? How will you adapt the growth stages model to value stocks (i) in the very long run; and (ii) for a company with no history of dividend payments. Prepare a briefing note for your brokerage.

Question 1Fill the parts in the above table that are shaded in yellow. You will notice that there are nineline items. Question 2 Using the data generated in the previous question (Question 1)a) Plot the Security Market Line b) Superimpose the CAPM’s required return on the SML c) Indicate which investments will plot on, above and below the SML?d) If an investment’s expected return (mean return) does not plot on the SML, what doesit show? Identify undervalued/overvalued investments from the graph

finance Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Do not provide Excel Screet shot rather use tool table Answer completely.

Which risk ratios best answer each of the following financial questions? a. How quickly is a company able to collect its receivables? b. How quickly is a company able to sell its inventory? c. Is the company able to make interest payments as they become due?

Which of the following statements is false?   A.   Basel II use the value at risk (VaR) with a one-year time horizon and a 99.9% confidence level for calculating capital for credit risk and operational risk.   B.   20 BP = 0.2%   C.   Basel I is increasing the amount of capital that banks are required to hold and the proportion of that capital that must be equity.   D.   Model-building approach is a model for the joint distribution of changes in market variables and using historical data to estimate the model parameters.

Debt financing is likely to appeal most strongly to organizations that have predictable profits and cash-flow patterns. Question 22 options: True False