Finance Answers

Tom is a full-time lecturer at a private higher institution and is considering a career in carpentry. He wishes to pursue a career in carpentry (a childhood dream) which he has studied part-time and is now equipped to take on clients. In his current position he earns a rate of R1000 per day and if he were to pursue a career in carpentry he would earn R800 per day, Due to the flexibility of the employment conditions at the higher education institution hew works for, Tom can negotiate the number of days he works at and will receive a rate of enumeration based on the number of days worked

1. Construct a production possibility frontier to illustrate tom’s earnings potential between the two careers if initially he was not working as a carpenter, then he worked one week per month, then two, then three and finally four weeks per month (assuming only four weeks in a month)

Foreign trade is faced by many risksб among them export credit risk. Suggest the various ways that can be adopted to reduce export credit risk citing the consequences to lack of the measures.

Harvey Smidlap, the named insured under a PAP (with all available coverage), was
injured while being driven to a Broadway play in a new York taxicab ( the cab was not
owned by Harvey and was insured only for liability). Harvey incurred medical expenses
due to his injury and he made a claim under Coverage B of his PAP. Which one of the
following statements is true about whether Harvey’s claim is valid?
a. It is, because the taxicab qualified as “your covered auto”
b. It is, because Harvey is the named insured and no exclusion applies
c. It is not, because of the public or livery exclusion
d. It is not, because Harvey was not occupying a covered car

Provide a rationale(s) why it would not be feasible for a national economy to operate at a Pareto efficient point.

ABC company is expected to generate post tax earnings of sh 200,000 p.a and
Companies in the same trade will generally have a price earning (P/E) ratio
Of 8. On account of company ABC limited size a ratio of 6 is considered more
Appropriate. The issued share capital is 1,000,000 ordinary shares of sh 50 each
Determine the value of shares and the value of business.

A future contract exist on a stock with a current price of sh 80. The future contract
natures in 6 months. The risk free rate is 7% per year and the stock has an
annual dividend yield of 3%. Calculate the future price.

Bank X has Sh. 100M of assets and Sh. 10M of Equity bank. Bank Y has Sh. 100M in assets and Sh. 4Min equity. Calculate the Equity Multiplier of each bank. If the two banks have 1%, return on assets; calculate the return on equity of bank X and Y and comment. (10 Marks)

If American Express, in their investor relations report describe their worldwide transaction volume as $1.1 trillion, and say their average discount rate is 2.43%, how do they arrive at a discount revenue of around $19 billion, as opposed to around $27 billion (i.e. 2.43% of 1.1 trillion)?

How can cross currency swaps or derivatives be used to help a country hide its debt? How did Goldman Sachs do this in Greece’s case?

Consider the following information:

Bear Market Normal Market Bull Market
Probability 0.3 0.5 0.2
Return on Stock A -10% 0% 40%
Return on Stock B -5% 5% 50%

Calculate and comment upon the expected return and standard deviation of A and B.