Finance Answers

As a finance manager of Kersot Enterprise Limited, where the Board of Trustees is reviewing the mix of the capital structure of the enterprise based on target value and has decided to raise 40 percent of new funds from long-term debt, 10 percent from preferred shares, and 50 percent from ordinary shares with components of 5.6, 10.5 and 15.7 respectively.

Estimate percentage of this BEST MIX for the enterprise and support the decision taken.        

Assume that MKU Enterprise Ltd sells a 500 KES bond that matures in 10 years. The annual interest payments are 45 KES and the net proceeds of the bond are Ksh. 478. Use the correct formula and the above given data to estimate before-tax-cost of bond.  

Reaping the returns example

When assessing risk, a rational investor will never use:

a. standard deviation of return

b. normal probability distribution as a general characteristic of financial market

c. variance of either return series or stock price series

d. probability of a loss

e. potential loss

When assessing risk, a rational investor will never use:

a. standard deviation of return

b. normal probability distribution as a general characteristic of financial market

c. variance of either return series or stock price series

d. probability of a loss

e. potential loss*

A share yields the following future dividends: 40 €, 20 €, 50 €. The opportunity cost of investment, as quantified by a finance practitioner is 7%. The share can be bought today for 200 € and is going to be sold for 250 €, after 3 years. The percentage value dividend yield and the net present value of this financial investment, are:

a. 159% and 250 €

b. 73% and 180 €

c. 34% and 120 €

d. 55% and 100 €

e. 25% and 120 €

Expected return is basically computed based on:

a . values of predicted returns and their attached probabilities

b. the geometric average of dividend yields

c. values of historical market prices times the market capitalization

d. the average value of GDP indexes

e. the variability of return

Which one of the following affirmations is false?

a.CAGR is computed by means of geometric average

b. the nominal profit of a financial investment does not involve opportunity cost

c. a t-bill is a rather safe investment alternative

d.geometric average is based on the compounding (interest) rate principle

e. given the same HPR, effective annual rate is always smaller than annual percentage rate

How much should you deposit today in a deposit that pays monthly compounded interest, if the final value of the deposit will be 70 000 $, in 12 years time, and the APR is 2%?

a. 35 783 $

b. 54 812 $

c. 49 472 $

d. 67 529 $

e. 32 567 $

What is the present value of a perpetual flow of constant payments of 1 550 currency units, for an individual investor, if the average perpetual expected interest rate is assumed 4.5%?

a. 34 343.43

b. 34 444.44

c. 43 444.44

d. 43 434.34

e. 43 333.33