Write a part about the effect of divestitures on R&D intensity/ innovation of the firm. Do a regression or something on the effects and make a conclusion.

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Divestitures and the effect on R&D intensity/ innovation of selling firm

Write a part about the effect of divestitures on R&D intensity/ innovation of the firm.

For example: is a firm going to invest more in R&D when they did a divestiture or are they having more innovations after divestiture. That kind of things.

Do a regression or something on the effects and make a conclusion.

 

How do venture capital firms design successful deals? Why it is likely that venture capital is disbursed in installments, rather than issuing all necessary funds at once?

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Essay Questions: – Marks ( 2.5 x 4 = 10 )

Q-1. List four protective covenants that you might be interested in as a prospective bondholder. Briefly describe why these would be realistic bondholder concerns. How would a convertible bondholder decide whether to exercise his rights of exchange? ( Words- 300 to 400 )

Q-2- How do venture capital firms design successful deals? Why it is likely that venture capital is disbursed in installments, rather than issuing all necessary funds at once? ( Words- 300 to 400 )

Q-3- (A)- Calculate the annual value of an interest tax shield under the assumption that a firm maintains debt at a permanent $1,000,000 level and rate of 12%. The corporate tax rate is 35%. If there is no chance of financial distress, how does the value of the firm change as a result of this debt?

(B)- How are dividends paid and how do companies decide on dividend payments? Discuss the concept of dividend signaling. ( Words- 250 to 350 )

Q-4- Discuss how agency problems can develop between shareholders and bondholders when the firm is experiencing financial distress. Is there a rule for finding optimal capital structure? ( Words- 300 to 400 )

 

What is the standard deviation of B? What is the minimum standard deviation of a portfolio consisting of A and B ? Describe that portfolio for K dollars to invest. What is the expected return of this portfolio?

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Asset Management

Question 1 (Diversification 0.5pt)

Consider the following:

  1. Strategy I: Suppose that you invest $100 in a stock. There is a 60% chance that the stock will go up in value by $10 at by the end of this year. There is a 40% chance that the stock will go down in value by $5 by the end of the year.
  1. Strategy II: Suppose that you invest $10 in 10 separate stocks. Each of these stocks also has a 60% chance of going up by 10% and a 40% chance of going down by 5% by the end of the year, and the performance of each of them is independent from the performance of the others. The rate of return on each of these investment strategy can be described as Money at end of year Money at beginning of year − 1 Calculate the expectation and variance of rates of return for these two strategies.

Question 2 (Correlated assets 1pt)

There are two assets in the market A and B.A has an expected return of 8% and a standard deviation of 10%. B has an expected return of 10% and a variance of 0.01. The correlation between A and B is 0.25. You cannot short.

  1. What is the standard deviation of B ? (0pt)
  2. What is the minimum standard deviation of a portfolio consisting of A and B ? Describe that portfolio for K dollars to invest. What is the expected return of this portfolio? (0.5pt)
  1. What is the minimum standard deviation for a portfolio with expected return of 10% ? (0.5pt) Hint: If there is only one portfolio that can achieve the target return of 10%, then it has automatically the largest standard deviation.

Question 3 (Covariance and correlation 1.5pt)

Suppose there are three states of the world, which are all equally likely, and two different financial assets. In the first state of the world, the first asset returns 8% and the second asset returns −5%. In the second state, the first asset returns −4% and the second asset returns 15%. In the third state, the first asset returns 12% and the second asset returns 6%.

– What is the mean return on each asset? What is the variance and standard deviation of the return on each asset? Use natural units, not percentages (i.e., use 0.09 instead of 9 for 9% ).

– What is the covariance of the returns of the two assets? What is the correlation between the two returns?

– Consider an equal weighted portfolio of the two assets. Compute the mean return, variance and standard deviation.

Question 4 (Covariance and correlation 1.5pt)

Consider the two (excess return) index-model regression results for stocks A and B. The risk-free rate over the period was 6%, and the market’s average return was 14%. Performance is measured using an index model regression on excess returns.

Stock A Stock B

Index model regression estimates 1% + 1.2 (rM − rf ) 2% + 0.8 (rM − rf )

R-square 0.576 0.436

Residual standard deviation, σ(e) 10.3% 19.1%

Standard deviation of excess returns 21.6% 24.9%

Calculate the following statistics for each stock:

  1. Alpha
  2. Information ratio, using market factor as the benchmark
  3. Sharpe ratio

The next two questions are from Exercises for Efficiently Inefficient.

Question 5 (Hedge funds vs. mutual funds 4pt)

Consider a passive mutual fund, an active mutual fund, and a hedge fund. The mutual funds claim to deliver the following gross returns: rpassive fund before fees

t = rstock index t ractive fund before fees t = 2.20% + rstock index t + εt The stock index has a volatility of √var (rstock index t ) = 15%. The active mutual fund has a tracking error with a mean of E (εt) = 0, a volatility of √var (εt) = 3.5%, and Cov (εt, rstock index t ) = 0 such that it’s beta to the stock index is 1 . The passive fund charges an annual fee of 0.10% and the active mutual fund charges a fee of 1.20%.

The hedge fund uses the same strategy as the active mutual fund to identify ”good” and ”bad” stocks, but implements the strategy as a long-short hedge fund, applying 4 times leverage. The risk-free interest rate is rf = 1% and the financing spread is zero (meaning that borrowing and lending rates are equal). Therefore, the hedge fund’s return before fees is rhedge fund before fees t = 1% + 4 × (ractive fund before fees t − rstock index t)

  1. What is the hedge fund’s volatility? (0.5pt)
  2. What is the hedge fund’s beta? (0.5pt)
  3. What is the hedge fund’s alpha before fees (based on the mutual fund’s alpha estimate)? (0.5pt)
  4. Suppose that an investor has $40 invested in the active fund and $60 in cash (measured in thousands, say). What investments in the passive fund, the hedge fund, and cash (i.e., the riskfree asset) would yield the same market exposure, same alpha, same volatility, and same exposure to εt ? As a result, what is the fair management fee for the hedge fund in the sense that it would make the investor indifferent between the two allocations (assume that the hedge fund charges a zero performance fee)? (1.5pt)
  5. If the hedge fund charges a management fee of 2%, what performance fee makes the expected fee the same as above? Ignore high water marks and ignore the fact that returns can be negative, but recall that performance fees are charged as a percentage of the (excess) return after management fees. Specifically, assume the performance fee is a fraction of the hedge fund’s outperformance above the risk-free interest rate. (1pt)
  6. (Extra thinking) Comment on whether it is clear that hedge funds that charge 2-and-20 fees are ”expensive” relative to typical mutual funds. More broadly, what should determine fees for active management? (0 pt)

Question 6 (Demand pressure 1.5pt)

Suppose that a significant fraction of the population of investors needs to buy a security, say a stock ABC, for reasons unrelated to the stock’s fundamentals (its expected future earnings and dividends). For instance, suppose that an important stock market index suddenly gives a large weight to stock ABC.

  1. What will happen to the stock price in a perfectly efficient market?
  2. What is likely to happen to the stock price in a market with limited arbitrage?
  3. In an efficiently inefficient market, where the stock price moves (as discussed in part b.), what is likely to happen to the price of another stock that is highly correlated to stock ABC (but not directly affected by the demand pressure)?

Question 7 (Bonus 1pt: Variance estimate)

Let ri for i = 1, . . . , n be independent sample of return r, a random variable with mean ̄r and variance σ2. Define the estimates

ˆ ̄r = 1nn∑ i=1ri, s2 = 1n − 1 n∑ i=1 (ri − ˆ ̄r)2 .

Show that E [s2] = σ2, i.e. s2 is an unbiased estimate of σ2. Note that you should calculate

E[ 1n−1∑ni=1 (ri − ˆ ̄r)2] with ˆ ̄r = 1n ∑n i=1 ri being random.

 

 

 

Write a critical analysis of each of the main ratio calculations related to each company. Include the calculations, results, an explanation of the importance of the ratio, and an analysis of which company has an advantage based upon the calculations.

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Compare/Contrast Mastercard & Visa

Critical analysis of each of the main ratio calculations related to each company. This critical analysis should include the calculations, results, an explanation of the importance of the ratio, and an analysis of which company has an advantage based upon the calculations. This analysis should include graphs and figures to supplement your written analysis

Which of the following is an accurate statement about the relative size of government purchases and government spending? Which of the following would be described as a common pool resource?

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Finance

The total cost of workers includes both direct compensation (wages and salaries) and fringe benefits associated with employment, including the cost of post-employment benefits promised the employees.

Question 1 options:

  True
  False

Question 2 (2 points)

Which of the following is an accurate statement about the relative size of government purchases and government spending?

Question 2 options:

  Spending includes transfer payments like social security, but purchases do not.
  Neither includes provision of government services by contract with private firms.
  Purchases will be greater than spending because of deficit and surplus adjustments.
  Because spending is the same as purchasing, the measures must be the same.

Question 3 (2 points)

Use of modified accrual accounting

Question 3 options:

  records expenditures when contractual payments are made.
  eliminates the need for keeping track of encumbrances during budget execution.
  requires immediate depreciation of all capital assets
  records expenditures when materials are delivered.

Question 4 (2 points)

Which of the following would be described as a common pool resource?

Question 4 options:

  A can of soda
  An aquifer
  Private investment
  A movie theatre

Question 5 (2 points)

Choose the best way to complete the statement: “A budget is…”

Question 5 options:

  a plan only used in limited cases
  includes a financial plan, a revenue forecast and a plan for managing any differences between the expenditure plan and the revenue forecast.
  a forecast for revenue collection only
  an excuse for a big legislative party.

Question 6 (2 points)

Government purchases divert productive resources (land, labor, capital, natural resources) from private use by businesses and individuals to government use in the provision of education, national defense, public safety, parks, and all the other services that governments provide.

Question 6 options:

  True
  False

Question 7 (2 points)

Which of the following is an application of the principle of moral hazard?

Question 7 options:

  Inappropriate lyrics are available for downloading through the Internet when regulations are not enforced.
  None of the above
  People build homes in areas subject to severe flood damage when federally-subsidized insurance is available.
  Actions by one individual have an impact on innocent bystanders.

Question 8 (2 points)

Toll goods are characterized by

Question 8 options:

  alternate (or competitive) use and exclusion not feasible.
  alternate (or competitive) use and exclusion feasible.
  nonrival and exclusion feasible
  joint use and exclusion not feasible.

Question 9 (2 points)

The executive budget does not state any kind of policy.

Question 9 options:

  True
  False

Question 10 (2 points)

An allotment schedule is

Question 10 options:

  A division of fiscal duties between the House and the Senate.
  A mechanism to reduce agency spending below its budget request.
  A timeline for the budget process.
  A mechanism to keep agency spending in line with the approved budget.

Question 11 (2 points)

 

  1. Bain Educational (a private school) operates an elementary school in Big Bucks, Kansas.  It is open to any student in the local school district and the school is financed by a property tax levied by the local school district.  This represents an example of:

Question 11 options:

  public provision and private production
  both public and private production
  private provision and private production
  public reduction and private production

Question 12 (2 points)

Break-even analysis attempts to determine

Question 12 options:

  the point at which total costs equal total revenues.
  the point at which variable costs equal variable revenues.
  levels of transfer payments.
  levels of grant payments.

Question 13 (2 points)

Which of the following arguments is based on the concept of adverse selection?

Question 13 options:

  The U.S. Military needs higher pay to attract the best personnel
 
  1. Mosquito abatement is a public good.
  Only the national government can successfully conduct macroeconomic stabilization policies.
  Private medical insurance companies seek to exclude those most likely to need healthcare.

Question 14 (2 points)

Internal control standards do not include which of the following?

Question 14 options:

  Use sequentially numbered receipt forms to acknowledge collections
  Separation between operational transactions and accounting record keeping
  Maintain qualified personnel and rotate duties
  Require regular external audit

Question 15 (2 points)

The purpose of a financial audit includes all of the following EXCEPT:

Question 15 options:

  Assess legality of transactions
  Evaluate effectiveness of public resource use
  Examine completeness of financial records
  Test internal controls

 

Based on your random sample of holding-period returns, which is assumed to represent the population well, would you be inclined to conclude that returns are normally distributed? Explain.

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Financial econometrics Ex 3

Complete the following set of exercises.

  1. From the data provided, select/generate a random sample of 355 companies. From now on, forget about the raw data set, and work only with the companies in this sample.
  1. Generate a data series with the same number of observations as the return-data series. Each observation of the new series corresponds to the outcome of a Bernoulli random variable, Y. The outcome is 1 if the holding-period stock return in the same month is larger than or equal to 0.011 and zero otherwise.
  1. Based on your random sample of Bernoulli variables, compute the sample average/sample mean of the outcomes in question 2. above. Is this value an unbiased estimate for the population’s probability of success (i.e. for the probability that returns are larger than or equal to 0.011)? Explain!
  1. Compute an unbiased estimate of the population variance of the Bernoulli random variable Y. Compare this value to the sample variance (i.e. the descriptive/summary statistic discussed in Appendix A). Are the two values different and – if yes – how do they differ?
  1. Now consider the 355 observations on holding-period returns. Make a histogram that summarizes the distribution of returns in your sample by counting the number of observations in each bin (i.e. frequency). Let Excel automatically generate the bins.
  1. Make a histogram that summarizes the distribution of returns in your sample by counting the number of observations in each bin (i.e. frequency). Plot the distribution in 25 bins of equal size.
  1. For the same 25 bins as in question 6. above, make a histogram that summarizes the distribution of returns in your sample by reporting the proportion of outcomes that fall into each bin.
  2. Based on your random sample of holding-period returns, which is assumed to represent the population well, would you be inclined to conclude that returns are normally distributed? Explain

 

Describe the business, including the type of business. Create the business case: “ First Service Residential “. Determine why funding is needed for the company.

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FINCB/571: Corporate Finance

USE THE Company “First Service Residential”

Link below.

Property Management | HOA Management | FirstService Residential (fsresidential.com)

  • Describe the business, including the type of business.
  • Create the business case: “ First Service Residential “.
  • Determine why funding is needed for the company.
  • Determine the sources of funding. Consider self-funding, borrowing, equity, venture capital, and so on.
  • Evaluate the requirements of each funding source you determined appropriate.
  • Analyze the associated risks of each funding source.
  • Decide which sources are the best fit for your company based on the requirements of each. Justify your decision.
  • Estimate the cost of capital for both short-term and long-term funding sources. Research current estimated APRs for your selected sources of funding. Consider creating a table or chart to display this information.

 

Identify and briefly outline your concerns with this credit union. Prepare a supervisory letter addressed to Stonebridge Credit Union identifying your major concerns and their impact on the institution’s risk profile, providing any recommendations to reduce the impact.

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Question 1 (40 Marks)

Review the financial statements for Stonebridge Credit Union and answer the following questions:

  1. Identify and briefly outline your concerns with this credit union (18 marks);
  2. Outline any additional questions you would need to ask the Board or Management and any additional information from Stonebridge Credit Union you would require confirming the extent of the concerns identified in a) above; (12 marks);
  3. Prepare a supervisory letter addressed to Stonebridge Credit Union identifying your major concerns and their impact on the institution’s risk profile, providing any recommendations to reduce the impact / (10 marks).

 

Question 2 (20 marks)

The town of Timber Ridge has enjoyed a stable business environment with the region’s main employer, Fastlink Timber Mills able to renew softwood lumber contracts with buyers in Alberta and the United States. Sales distribution is 20% within Canada and 80% to the US. Work force is just under 5,000.

 

The Timber Ridge Credit Union (TRCU) operates 3 branches in the town serving the surrounding communities (population 23,250). TRCU is the predominant retail and commercial financial institution with over $2.0 billion in loans outstanding related to residential mortgages, personal lines of credit and business loans.

 

As part of the US Federal Government’s shift in trade policy, soft wood lumber tariffs have been proposed on products originating in Canada to a level that ongoing profitable export to 80% of Fastlink Timber Mills US clients is in question.

 

Provide a description of the current and potential risks affecting TRCU as a result of any disruption to US exports. Include in the description how earnings, capital, liquidity, treasury and operational functions at TRCU will be impacted. Also provide possible risk mitigation considerations for discussion with TRCU management.

Stonebridge Credit Union

Balance Sheet

December 31

  
(‘000) 2017 2016
 

Assets

    
Cash Resources (note 1) 86,743 135,222
Investments (note 2) 247,378 255,458
Member Loans (note 3) 2,425,612 2,064,405
Property & Equipment 11,168 12,437
Other 6,953 8,812
  2,777,854 2,476,334
 

Liabilities and Equity

    
Member Deposit s (note 4) 2,027,463 1,868,667
Securitizations 535,709 434,559
Borrowing (note 5) 34,500 —
Payables 8,052 6,756
Other Liabilities 4,094 8,799
Equity Shares 82,023 84,256
Retained Earnings 85,013 73,297
  2,777,854 2,476,334

Stonebridge Credit Union

Statement of Profit and Loss and Retained Earnings

December 31

(‘000)

                                                                                         2017                              2016

 

 

Interest Income

Interest on Member Loans

  

89,613

  

84,559
Other Interest 3,978 3,194
  93,591 87,753
Interest Expense    
Interest on Member Deposits 36,745 35,424
Borrowing & Securitization 8,786 7,149
  45,531 42,573
Net Interest Income 48,060 45,180
Other Income 8,650 7,386
     
Net Interest & Other Income 56,710 52,566
Provision for credit losses (417) 2,363
     
Operating Expenses 38,896 36,984
Patronage Return 1,179 1,164
Income Taxes 4,079 (815)
     
Net Income Attributable to Members 12,973 12,870
     
Retained Earnings, beginning of year 73,297 60,427
Retained Earnings, end of year 85,013 73,297

 

 

Notes to the Financial Statements
 
Note 1 Cash Resources
  2017 2016
     
Cash 42,237 27,963
Deposit maturing within 3 months    
            Schedule 1 Bank 17,420 35,003
            Central 1 27,086 72,256
  86,743 135,222
     
Note 2 Investments 2017 2016
     
Central 1 Reserve Deposit 153,917 141,913
T-bills & BAs 9,565 76,795
Central 1 Discount Deposit 23,040 24,052
Mortgage Backed Securities 41,631   —
Fair Value Adjustments 19,225 12,698
  247,378 255,458
     
Note 3 Member Loans 2017 2016
     
Residential Mortgages    
            Uninsured 824,944 583,593
            Insured by CMHC 72,662 46,194
            Insured by Genworth or Canada Guaranty 537,986 499,606
     
Personal Loans 13,576 13,779
Commercial Loans 972,901 923,676
     
Fees & Allowances for Credit Losses 3,543 (2,443)
Net Loans to Members 2,425,612 2,064,405
     
Note 4             Member Deposits 2017 2016
     
Demand Deposits 627,479 495,641
Term Deposits 801,803 820,801
Registered Deposits 536,589 515,425
Foreign Currency Deposits 46,352 21,120
     
Accrued Interest payable 16,481 17,029
Unamortized broker fees (1,241) (1,349)
  2,027,463 1,868,667
     

 

     
Note 5 Borrowing (O/S balances) 2017 2016
     
Line of Credit with a Schedule 1 Bank — —
Central 1 12,000 —
Desjardin 22,500 —
  34,500 —
     

 

 

Describe and appraise the intrinsic value and time value of an option, as well as its determinants.

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Value futures contracts and swaps

Describe and appraise the intrinsic value and time value of an option, as well as its determinants.

  • Value and discuss options using the Binomial Option Pricing Model
  • Value and discuss options using the Black-Scholes Option Pricing Model

Appraise the use of option Greeks

 

 

Discuss two (2) reasons why Mr. Rossi chose to use forward contracts instead of futures contracts. Explain how the open interest for a futures contract can remain the same even though there are transactions for the contract.

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FIN358 Tutor-Marked Assignment

SINGAPORE UNIVERSITY OF SOCIAL SCIENCES (SUSS) Page 3 of 4

 

Question 1

(a) Sand is an important raw material used in the construction of buildings, roads, and the manufacture of glass. Despite its importance in the economy, there are no futures contracts for sand. Appraise the issue and briefly offer two (2) possible explanations.    (12 marks)

(b) Mr. Rossi is the CFO of Starlight Corporation which manufactures light fittings. Its main market is the US. Mr. Rossi wanted to hedge his US dollar receipts.

  • (i) Discuss two (2) reasons why Mr. Rossi chose to use forward contracts instead of futures contracts.   (12 marks)
  • (ii) Discuss one (1) reason why Mr. Rossi did not consider using swaps instead of futures contracts.    (6 marks)

(c) (i) Discuss what the term “open interest” means.   (3 marks)

  • (ii) Appraise the use of open interest by traders in the futures markets.   (6 marks)
  • (iii) Explain how the open interest for a futures contract can remain the same even though there are transactions for the contract.  (6 marks)

 

(d) (i) John Tan is a commodity trader. He observed the following prices in the commodity market. Appraise whether there is an arbitrage opportunity, how he can execute it, and the profit that can be made.

  • Spot price of commodity = $50
  • Futures price of commodity = $52
  • 1-year risk-free interest rate = 4%
  • 1-year storage cost = 1%

(9 marks)

(ii) Discuss two (2) obstacles in the market that prevents Mr. Tan from realizing the profit.    (6 marks)

Question 2

(a) Discuss whether the following options will be exercised early.

  • (i) Dividend-paying call
  • (ii) Non-dividend paying put   (10 marks)

(b) You are an options trader for a hedge fund. Your assistant prepared the following sheet containing the prices of various options on January 31. Assume the options expire at the end of the expiration month. The risk-free interest rate is 8% per annum.

Expiration Months

Stock Stock Std. Exercise March June September

Price Dev. Price

DDE call 50 20% 50 4.00 4.50 5.00

DDE put 50 20% 50 3.50 4.50 —

DDE call 50 20% 55 2.00 3.80 5.20

HJK call 50 30% 50 4.00 4.70 4.40

Appraise the options and identify three (3) pricing discrepancies. You may use the Excel program to help you uncover the pricing discrepancies. Show how you would profit from them.

Use the following format to answer this question.

  • Pricing Discrepancy:
  • Strategy to profit from pricing discrepancy: (24 marks)

(c) List two (2) limitations of using the Black-Scholes model for valuing options.    (6 marks)