Compared to junior unsecured debt, subordinated debt exhibits __________ credit risk, __________ yield, and __________ recovery rate.

Q: Kiambu County Government has received equipment worth Kshs.461,520,000 from an American Company…

A: Foreign exchange risk It is the losses  that a international monetary exchange might bring about…

Q: ATEch has fixed costs of $8 million and profits of $5 million. Its competitor ZTech is roughly the…

A: Operating leverage is a cost-accounting metric that determines how an entire lot a business…

Q: 2. (a) Let the following be observed for the stock price of ZPZ-Bank this day: P = £5.50 (The…

A: Here, To Find: Part a. Fair value of three-month call option =? Part b. Fair value of three-month…

Q: Fun Tyne plc declares a dividend payment of 20p per share. Ignoring taxes and the time value  of…

A: Solution:- In efficient markets, the price of a security reflects immediate effect of all the…

Q: The applicable risk-free rate component of any 5-year security is 6.50%. Default risk premium is…

A: Here, Time to Maturity of Security is 5 years Risk Free Rate is 6.50% Default Risk Premium is 2%…

Q: Fatima buys an 11-year, $314,530, a zero-coupon bond with an annual YTM of 1.74%. If she sells the…

A: Zero coupon bond will not pay any coupon throughout its life, hence the present value of the bond…

Q: ooking at a $523,000 home. To avoid private mortgage insurance (PMI), she put 20% down and the…

A: LTV that is the loan to value ratio shows that how much can give the loan against property and is…

Q: . The annual premium on an insurance policy is $1, 200. First, find the premium per period if…

A: The total annual cost is the amount of money that would be paid to maintain the project.

Q: Gs Co. has insufficient retained earnings to fund capital expenditures and decided to issue new…

A: Floatation cost is the cost to be incurred on issue of new shares.     Ke = (D1 /(P0 - F)) + G Where…

Q: Which type of average rate of return best describes the average annual rate of return earned over…

A: A mutual fund's average yearly return is a percentage that indicates the fund's historical average…

Q: Determine the monthly amortization for a 30-year mortgage of P6,000,000 at a 5% interest rate,…

A: This question is an application of annuity. The monthly amortization is the equal monthly instalment…

Q: 3. A project requires an initial investment of $1,000,000 and generates annual income of $300,000…

A: Present Worth Method: Cash flows of every elective will be  decreased  to time zero by assuming an…

Q: Explain the problems of adverse selection and moral hazard caused by asymmetric information. How can…

A: A financial intermediary is a company or people that acts as a go-between for various parties to…

Q: Kelly invested in two stocks. She put 22% into stock A, which has an expected return of 7.3%, and…

A: Expected return refers to the return earn by an investor on the amount invested during a period of…

Q: . A bank offers a 272 – day discounted loan at a simple discount rate of 12%. (a) How much money…

A: a) Discounted loan is a loan which doesn't have to pay interest periodically. This type of loan…

Q: Larry wants to make a decision on a six- year amortized loan for him to buy a new car. The value of…

A: The maximum loan that Larry can pay in six years is the present value of monthly payment of $700 for…

Q: Which of the following statements is true about broker markets? Group of answer choices Brokers…

A: In broker markets, brokers does the trade on behalf of their clients. Brokers do not have right to…

Q: If the corporate tax rate is greater than zero, how would taxes affect the firm's cost of capital?

A: Solution:- Cost of capital means the minimum rate of return required by the investors of a firm ie.…

Q: Sensitivity Analysis Methods

A: Sensitivity analysis is an analysis method that is used to identify how many variations in the input…

Q: A P1,000, 6% bond pays dividend semiannually and will be redeemed at 110% on June 21, 2022. It is…

A: Bonds give income to investors in the form of coupon payments, which are commonly made quarterly,…

Q: You read in The Wall Street Journal that 60-day T-bills are currently yielding 9.5%.  Your…

A: As there is no probability of loss in these type of risk free rate thus it is free from any kind of…

Q: Which of the following statements is/are true? Statement 1: The PSE is a self-regulatory…

A: Financial markets are said to be perfect when trading costs are very low, access to financial market…

Q: You expect to receive $150,000 per year on a contract that will last 5 years. You are trying to…

A: Present value of future cash inflows will be equal to the worth of contract today.   Worth of…

Q: (b) Consider the following two financial assets: (1) an ordinary share that is expected to pay a…

A: The dividend discount model states that we can find out the price of a stock based on the present…

Q: Corporation Ltd. have 6% coupon bonds traded on the market that have 5 years left to  maturity. The…

A: In calculation of the present value of cash inflows we may use discounting factor. On the basis of…

Q: Question Owing to perennial complaints by students about the lack of accommodation problems on…

A: Before investing in new projects, profitability of the project is evaluated by using various methods…

Q: National Co. has portfolio consist of three shares below: Stock Investment Beta АВС 140,000 1.45 CDE…

A: Stock Investment Beta ABC 140000 1.45 CDE 75000 1.2 EFG 160000 0.7

Q: The quoted rate of a short-term government security is 2%. A premium of 3% is added to the risk-free…

A: As per  CAPM formula   Required rate of return of the portfolio = Risk free rate+(Beta*Premium)…

Q: easons in favour of forecasting exchange rate

A: Exchange rates refer to the currency of a country for the objective of conversion in the currency…

Q: 4. In a CDS the accrual payment is a payment made by CDS to CDS and occurs when the defaults

A: In a CDS, the accrual payment is a payment made by a CDS buyer to a CDS seller and occurs when the…

Q: Andie needs to borrow $6,000 to buy a car. One dealer offers her a monthly payment of $193.60 on a…

A: Given two loan options. We have to find the total payments made for both options and select the one…

Q: What is the present value of 5,275 due in 6 months if 11% interest is paid

A: Future Value = (P * R * T) + PWhere P = Present ValueR = Rate of InterestT = Time Period

Q: eristics?

A: Step 1   Risk is defined as an occurrence that harms financial performance and/or reputation as a…

Q: A firm has an net operating profit of P300,000, interest of P35,000, and a tax rate of 25%. The firm…

A: WACC = (Ke*Wk) + (Kd*(1-t)*Wd) Where Ke  = Cost of equity Kd  = Cost of debt  Wk = weight of equity…

Q: Discuss the assumptions underlying the Gordon growth model.

A: Gorden Model recognizes that the current market price of the share reflects expected dividends . In…

Q: The classified balance sheet for company reporte current assets o $1,688,830, tota abilities of…

A: Current ratio = Current assets/current liabilities

Q: Explain why traditional banking has been on the decline in recent years.

A: Traditional banking refers to banks that have a physical presence and are licensed to operate in the…

Q: A civil engineer planning for her retirement places 8% of her salary each year into a…

A: To calculate the future worth we will use the future value of growing annuity formula as follows:…

Q: An investor has portfolio of shares consisting of P2,500 investment in each of twenty different…

A: Portfolio beta = 3.00 Beta of sold share = 3.00 Beta of bought share = 2.00 Share in the portfolio…

Q: Critically analyse the following concepts within the context of factor investing: (i) multi-factor…

A: An investment is an asset or item purchased for the purpose of generating an increase in income or…

Q: 13. A discounted loan of $3,000 at a simple discount rate of 6.5% is offered to Mr. Jones. If the…

A: 1. Interest amount = (face Value - amount received = 3000 - 2869.11 = $130.89) 2. Time when the…

Q: up to $700 monthly in order to repay the loan. Determine if it is enough for him to agree on this…

A: Loan payment: These represent periodic payments made by the borrower to the lender for the purpose…

Q: 12. A bank offers a 272 - day discounted loan at a simple discount rate of 12%. (a) How much money…

A: Ans: (a) Loaned raised 5000   Discount 12%   Time 272 days         Cash received=…

Q: BURNER Co. is considering two mutually exclusive projects, Project A and Project B. The projects…

A: Net Present Value: It is a technique for adjusting the current value of all future cash flows…

Q: Assume your goal in life is to retire with one million dollars. How much would you need to save at…

A: To calculate the annual saving amount we will use future value of annuity formula as follows…

Q: A firm has an net operating profit of P300,000, interest of P35,000, and a tax rate of 25%. The firm…

A: WACC = (Cost of equity * Weight of equity) + (Cost of debt * Weight of Debt * (1- Tax rate))   Firm…

Q: In identifying alternative courses of action, one should consider the following, except a. continue…

A: The answer is option (d) change the current situation. In identifying an alternative course of…

Q: (a) Distinguish between the activities of retail and investment banks and discuss how this has an…

A: An investment is an asset or item purchased for the purpose of generating an increase in income or…

Q: You are the financial manager of the firm LAB.inc which does research in the medical field, your…

A: Given, The yearly payments $100,000

Q: An analyst is studying the movement of the stock Philippines. His research and came up with a…

A: Total expected return (R) = 0.17   Probability of Strong economy (Ws) = 0.30 Probability of normal…

Loanable Funds Theory

The loanable funds theory is a neoclassical theory that determines the interest rate where the demand for loanable investments and supply of loanable funds intersect. To determine the interest rate, this theory employs linear regression and a demand curve. At the equilibrium point, demand for borrowings and demand for the issuance of borrowing funds are inextricably linked. This point of equilibrium should equalize demand and the supply of money available for borrowing.