Finance Answers

Discuss Markowitz’s portfolio theory of asset pricing. Critically examine the efficientmarkets
hypothesis.

Critically examine the Quantity Theory of Money as a theory of the demand for money
and contrast it with the Keynesian theory of the demand for money.

Given the following information, assess whether the interest rate parity condition holds




Where S is spot exchange rate, F is forward exchange rate is domestic interest rate, is foreign interest rate

if bank X is quoting “A$1.5838/€ bid and A$1.1682/€ ask” and bank Y is quoting “A$1.1684/€ and A$1.1690/€ ask”. If you buy € 2 Million from X simultaneously sell € 2 Million to Y. Calculate arbitrage profit

iA stock price is currently selling at sh. 50. It is known that at the end of six months it will be either sh. 45 or sh. 55. The risk-free rate is 10% per annum with continuous compounding. What is the value of a six-month European call option with a strike price of sh. 50?

Your company wishes to raise a new debt capital on stock market. Your managing director has heard of warrants and traded options and suggests that an issue of debt, accompanied by either attached warrants or traded options might be attractive to investors and have benefits for your company.

Required:
Discuss whether you consider your managing director’s suggestions to be useful. (10 Marks)

Mr maneno is considering investing in a risky project which would be added to an existing portfolio. He foresees five possible status of the economy as follows.
Status of the probability return on return on proposed
Economy of existing portfolio investment
A 0.2 16% 12 %
B 0.4 18% 11 %
C 0.2 20% 10 %
D 0.1 22% 9%
E 0.1 24% 8%

The risk free rate of interest is 9%p.a.
Required:
a) Determine whether the proposed project is acceptable. (10 Marks)
b) Explain to Mr Maneno on the usefulness of CAPM in project appraisal.
( 5 Marks)

Differentiate between Optimal efficient tax structure and optimal tax system

Is any or some of the borrowing by the U.S. Treasury via the issuance of treasury securities used to capitalize the lending operations by the Federal reserve? I'm not asking about open market operations whereby the fed purchases/sells securities, I'm talking about does the Treasury direct capital raised from security issuance to the Fed to capitalize lending? In other words, if the Treasury were to borrow 100 billion and accrue 1.4 billion in interest owed, why the hell doesn't the Fed just lend 100 billion and generate 1.4 billion in interest earned so that taxes are never required to service the debt? Shouldn't this be written into law? What am I missing here?

Finance question: Machine A has a value of 26 and will produce 30 in prosperity and can be abandoned for 19. Machine B has a value of 24 and will produce 30 in prosperity and 15 in a bad economy. Is Machine A worth 2 more? Please use a discount rate of 8%.