transcations to change its risk profile. Which of the following transcations will for sure increase the risk-estimate of the company (and increase the borrowing interest rate) from the z-score perspective. Mark all that apply; more than one answer could be correct. Sold held-to maturity investments for a profit Write-off some obsolete inventory Collect cash from accounts receivable

transcations to change its risk profile. Which of the following transcations will for sure increase the risk-estimate of the company (and increase the borrowing interest rate) from the z-score perspective. Mark all that apply; more than one answer could be correct. Sold held-to maturity investments for a profit Write-off some obsolete inventory Collect cash from accounts receivable

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Based on the theoretical DuPont model, explain three (3) strategies that banks can adopt to increase their ROE. Elaborate any risk implications or shortcomings associated with each strategy.
Now suppose there is no financial intermediary to handle liquidity shocks. However, at t = 1 a market for bonds opens up and agents can trade their wealth at t = 1 for wealth at t = 2. Each bond pays 1 at t = 2 and its price is pM. Calculate the consumer's optimal investment decision IM at t = 0, the price of the bond pM, and the optimal consumption in the two states cM, cM. Compare the mutual fund and bond market allocations: are c4 and c bigger or smaller than cf and c, respectively?
In rising interest rate environment, what will be the impact on highly leveraged companies? Evaluate the same in context of Credit Risk?
Although investing all at once works best when stock prices are rising, dollar-cost averaging can be a good way to take advantage of a fluctuating market. Dollar-cost averaging is an investment strategy designed to reduce volatility in which securities are purchased in fixed dollar amounts at regular intervals regardless of what direction the market is moving. This strategy is also called the constant dollar plan. You are considering a hypothetical $1,200 investment in a media company's stock. Your choice is to invest the money all at once or dollar-cost average at the rate of $100 per month for one year. Assume that the company allows you to purchase "fractional" shares of its stock. (a) If you invested all of the money in January and bought the shares for $12 each, how many shares could you buy? shares (b) From the following chart of share prices, calculate the number of shares that would be purchased each month using dollar-cost averaging and the total shares for the year. Round to…
With reference to the information given above, Discuss the relationship between risk and return of the individual securities. Demonstrate the meaning and advantages of diversification by constructing a portfolio consisting of equal investments in the High-Tech Co. and the Counter- Cyclical Co. Explain your idea and show your work clearly. Perform calculations or quantitative analyses to support your answers where necessary.
A commercial bank with a structured loan portfolio as shown below is faced with a spike indemand for mortgages and motor vehicle loans from clientsi. What advice would you give the credit manager as to the impact of the spike on the overall riskprofile of the lending portfolio which currently stands at:Motor Vehicle loans: 30%Mortgage loans: 50%Credit Card Advances: 20%ii. What are the risks would you advise the credit manager to consider in the structuring of loans ,given the demand.
A discounted cash flow approach to valuing a firm, using the weighted average cost of capital as a discount rate, makes sense to use when: a. Financial structure and risk of the investment are relatively stable over time. b. The risk of bankruptcy is high. c. A firm is expected to go through a transition that calls for a high use of debt that will be paid down over a few years. d. Non-GAAP accounting is being used. e. All of the above.
You recently found out that when the market is in recession, ALL assets seem to suffer from some degree of liquidity problems as there are less trades than usual, and thus it is hard to sell an asset without losing some of its fair value. So, you concluded that at least some portion of liquidity risk must be systematic in nature and therefore it must be compensated by the market. To verify this, you cut the market portfolio in half by the illiquidity measure developed by Amihud (2002) [So that you have one relatively liquid portfolio and one relatively illiquid portfolio. Assume that this measure is reliable.] and calculated the market liquidity risk premium as follows: Market liquidity risk premium = Expected return on the illiquid portfolio - Expected return on the liquid portfolio = [E(RIL) - E(RL)] Then you formed 5 portfolios from the entire market based on liquidity (Amihud measure) and estimate the factor loading β (called liquidity beta) of each portfolio using [RIL - RL] as…
Finance In a bubble, the buying is due to investors believing the price of the asset will continue to go up. (TRUE/FALSE)
Wolseley manufacturing Co. invests in a group of risky projects, which increases the unsystematic risk of the firm, but does not change the systematic risk of the firm. All else the same, the expected risk premium on its common stock is most likely to: Select one: a. Increase, because the difference between the expected return on the firm's stock and the risk-free rate will widen. b. Increase or decrease, depending on the internal rate of return of the new projects. c. Decrease, because the difference between the expected return on the firm's stock and the risk-free rate will widen. d. Decrease, because the difference between the expected return on the firm's stock and the risk-free rate will narrow. e. Remain unchanged, because the level of systematic risk is unchanged.
Give your thoughts on the prompts below Firms use market capitalization when considering the market value added. We have seen that a number of things can affect capitalization values, so is this really the best method to use? A well known company recently had a 20-1 stock split that drew a lot of attention...how does this affect their market value added? Administrative errors can have a big impact in receivables turnover and payment delay ratios, so companies should include administrative and other indirect costs in the calculations of those ratios. Agree or Disagree and defend your answer.
1. A credit portfolio manager is expecting corporate credit spreads to widen over the next several months. What are two ways that she can take advantage of the excess return (+coupon payments) relative to risk-free assets (i.e. treasuries) but limit the impact of the expected moves?

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		Sold held-to maturity investments for a profit
		Write-off some obsolete inventory
		Collect cash from accounts receivable
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