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REVISION QUESTIONS 1. Distinguish each of the f...




REVISION QUESTIONS 1. Distinguish each of the following: a) physical asset markets and financial asset markets, b) spot and futures markets, c) money and capital markets, d) primary and secondary markets, and e) private and public markets. 2. If a firm attempts to maximize its fundamental stock price, it is good or bad for society? In general, it is good. Aside from such illegal actions as fraudulent accounting, exploiting monopoly poser, violating such codes, and failing to meet environment standards, the same actions that maximize fundamental stock prices also benefits society. Discuss the benefits of maximization of stock price to the society, focusing on three groups of stakeholders: owners, consumers and employees. 3. The cost of capital is affected by a number of factors. Some are beyond the firm?s control, but others are influenced by its financing and investment policies. A firm can affect its cost of capital through its capital structure policy, dividend policy and investment policy. Discuss the three most important factors that are beyond a firm?s direct control. 4. Financial management is about to explain what managers can do to make their companies more valuable. Managers must understand how investors determine the values of stocks and bonds if they are to identify, evaluate and implement projects that meet or exceed investors expectations. However, value creation is impossible unless the company has a well articulated plan. Elaborate the three types of plan: a) Strategic plan b) Operating plan c) Financial plan. 5 Since the early 1990s, bonds have been assigned quality ratings that reflect their probability of going into default. The three major rating agencies are Moody?s Investors Service (Moody?s), Standard & Poor?s Corporation (S&P), and Fitch Investor Service. In Malaysia, it is done by Rating Agency Malaysia (RAM) and Malaysia Agency Rating Corporation (MARC). Bond ratings are based on both qualitative and quantitative factors. Discuss these factors in detail. 6 In a free economy, capital from providers with available funds is allocated through the price system to users that have a demand for funds. The interaction of the providers? supply and the users? demand determines the cost (or price) of money, which is the rate users pay to providers. For debt, we call this price the interest rate. For equity, we call this price the cost of equity. Discuss the four most fundamental factors affecting the cost of money. 7 Although all bonds have some common characteristics, they do not always have the same contractual features. For example, most corporate bonds have provisions for early repayment (call features), but these provisions can be quite different for different bonds. Explain the basic characteristics of bonds: a) Par value b) Coupon interest rate c) Maturity date d) Provisions to call or redeem bonds e) Sinking funds,please can the answers be detailed


Paper#4769 | Written in 18-Jul-2015

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