Question 13 of 25
Subrogation implies that...
A. the insurer acquires the right to take action against the third party.
B. the insured's rights are placed in the insurer's position.
Question 14 of 25
The proximate cause can be described as...
A. events legally caused what result is an extremely difficult legal problem to prove.
B. the active, efficient cause that sets in motion a train of events that brings about the result, the intervention of any force started and working actively from a new and independent source.
C. the active, efficient cause that sets in motion a train of events that brings about the result, without the intervention of any force started and working actively from a new and independent source.
Question 15 of 25
A competent insurer will not insure a risk that they do not understand, or are insurable. The most correct elements of insurable risk are...
A. homogeneous, measurable, accidental, inevitable.
B. homogeneous, measurable, accidental.
C. fortuitous, avoidable, measurable, definitive
Question 16 of 25
Factors limiting the insurability of risk is...
A. premium loadings, moral hazard and adverse selection.
B. underwriting risk, moral hazard and adverse selection
In: Finance
Question 20 of 25
The most correct purpose of the proposal form is to...
A. elicit information, elicit a quotation and establish a warranty.
B. elicit information, describe the cover available.
Question 21 of 25
The most correct interpretation of the operative or insuring clause of an insurance policy is that it refers to...
A. payment of premium, indemnify/compensate, payment/replacement/reinstatement, defined events, period of insurance, exclusions, conditions, limits per schedule
B. payment of premium, indemnify/compensate, payment/replacement/reinstatement
C. payment/replacement/reinstatement, defined events, period of insurance, exclusions
Question 22 of 25
A company has a building valued at R15 000 000. The building is insured for R10 000 000 by ACME Insurers and R5 000 000 by BCME Insurers. There was a fire incident at the building with total damage of R6 000 000.
How much will BCME pay of the damage?
A. R2 000 000
B. R5 000 000
C. R4 000 000
In: Finance
Consider the following table:
| Stock Fund | Bond Fund | ||
| Scenario | Probability | Rate of Return | Rate of Return |
| Severe recession | 0.10 | −36% | −11% |
| Mild recession | 0.20 | −12% | 13% |
| Normal growth | 0.35 | 12% | 4% |
| Boom | 0.35 | 32% | 5% |
a. Calculate the values of mean return and
variance for the stock fund. (Do not round intermediate
calculations. Round "Mean return" value to 1 decimal place and
"Variance" to 2 decimal places.)
| Mean return | % |
| Variance | |
b. Calculate the value of the covariance between
the stock and bond funds. (Negative value should be
indicated by a minus sign. Do not round intermediate calculations.
Round your answer to 2 decimal places.)
Covariance
In: Finance
Options - are contracts that give the holder the right, not obligation to buy or sell the underlining asset at a specific price and time.These can be used as hedging strategies and speculation. How and why are options used to protect holdings of corporations? Also for Investors? Provide an example along with an advantage and disadvantage along with your opinion on them.
In: Finance
In: Finance
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Suppose that many stocks are traded in the market and that it is possible to borrow at the risk-free rate, rƒ. The characteristics of two of the stocks are as follows: |
| Stock | Expected Return | Standard Deviation | ||||
| A | 8 | % | 40 | % | ||
| B | 11 | % | 60 | % | ||
| Correlation = –1 | ||||||
| a. |
Calculate the expected rate of return on this risk-free portfolio? (Hint: Can a particular stock portfolio be substituted for the risk-free asset?) (Round your answer to 2 decimal places.) |
| Rate of return | % |
| b. |
Could the equilibrium rƒ be greater than 9.20%? |
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In: Finance
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A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a sure rate of 4.3%. The probability distributions of the risky funds are: |
| Expected Return | Standard Deviation | |
| Stock fund (S) | 13% | 34% |
| Bond fund (B) | 6% | 27% |
| The correlation between the fund returns is .0630. |
|
What is the reward-to-volatility ratio of the best feasible CAL? (Do not round intermediate calculations. Round your answer to 4 decimal places.) |
| Reward-to-volatility ratio |
In: Finance
Lear Inc. has $1,030,000 in current assets, $465,000 of which
are considered permanent current assets. In addition, the firm has
$830,000 invested in fixed assets.
a. Lear wishes to finance all fixed assets and
half of its permanent current assets with long-term financing
costing 9 percent. The balance will be financed with short-term
financing, which currently costs 6 percent. Lear’s earnings before
interest and taxes are $430,000. Determine Lear’s earnings after
taxes under this financing plan. The tax rate is 40 percent.
Earnings after tax-
b. As an alternative, Lear might wish to finance
all fixed assets and permanent current assets plus half of its
temporary current assets with long-term financing and the balance
with short-term financing. The same interest rates apply as in part
a. Earnings before interest and taxes will be $430,000.
What will be Lear’s earnings after taxes? The tax rate is 40
percent.
Earnings after tax-
2.
Antonio Banderos & Scarves makes headwear that is very
popular in the fall-winter season. Units sold are anticipated
as:
| Monthly Unit Sales | ||
| October | 1,800 | |
| November | 2,800 | |
| December | 5,600 | |
| January | 4,600 | |
| 14,800 | Total units sold | |
If seasonal production is used, it is assumed that inventory will directly match sales for each month and there will be no inventory buildup.
However, Antonio decides to go with level production to avoid being out of merchandise. He will produce the 14,800 items over four months at a level of 3,700 per month.
a. What is the ending inventory at the end of each
month? Compare the unit sales to the units produced and keep a
running total.
Antonio Banderos & Scarves makes headwear that is very
popular in the fall-winter season. Units sold are anticipated
as:
| Monthly Unit Sales | ||
| October | 1,800 | |
| November | 2,800 | |
| December | 5,600 | |
| January | 4,600 | |
| 14,800 | Total units sold | |
If seasonal production is used, it is assumed that inventory will directly match sales for each month and there will be no inventory buildup.
However, Antonio decides to go with level production to avoid being out of merchandise. He will produce the 14,800 items over four months at a level of 3,700 per month.
a. What is the ending inventory at the end of each
month? Compare the unit sales to the units produced and keep a
running total.
|
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b. If the inventory costs $6 per unit and will be financed at the bank at a cost of 12 percent, what is the monthly financing cost and the total for the four months? (Use 1 percent as the monthly rate.)
|
In: Finance
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A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a sure rate of 5.3%. The probability distributions of the risky funds are: |
| Expected Return | Standard Deviation | |||
| Stock fund (S) | 14 | % | 43 | % |
| Bond fund (B) | 7 | % | 37 | % |
| The correlation between the fund returns is .0459. |
|
Suppose now that your portfolio must yield an expected return of 12% and be efficient, that is, on the best feasible CAL. |
| a. |
What is the standard deviation of your portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal places.) |
| Standard deviation | % |
| b-1. |
What is the proportion invested in the T-bill fund? (Do not round intermediate calculations. Round your answer to 2 decimal places.) |
| Proportion invested in the T-bill fund | % |
| b-2. |
What is the proportion invested in each of the two risky funds? (Do not round intermediate calculations. Round your answers to 2 decimal places.) |
| Proportion Invested | |
| Stocks | % |
| Bonds | % |
In: Finance
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A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a rate of 5.6%. The probability distribution of the risky funds is as follows: |
| Expected Return | Standard Deviation | |
| Stock fund (S) | 17% | 46% |
| Bond fund (B) | 8 | 40 |
| The correlation between the fund returns is 0.16. |
|
Solve numerically for the proportions of each asset and for the expected return and standard deviation of the optimal risky portfolio. (Do not round intermediate calculations and round your final answers to 2 decimal places. Omit the "%" sign in your response.) |
| Portfolio invested in the stock | % |
| Portfolio invested in the bond | % |
| Expected return | % |
| Standard deviation | % |
In: Finance
home / study / business / finance / finance questions and answers / (bond valuation) you own a 15-year, $1 comma 000 par value bond paying 6.5 percent ... Question: (Bond valuation) You own a 15-year, $1 comma 000 par value bond paying 6.5 percent interest a... (Bond valuation) You own a 15-year, $1 comma 000 par value bond paying 6.5 percent interest annually. The market price of the bond is $750, and your required rate of return is 11 percent. a. Compute the bond's expected rate of return. b. Determine the value of the bond to you, given your required rate of return. c. Should you sell the bond or continue to own it? a. What is the expected rate of return of the 15-year,$1,000 par value bond paying 6.5 percent interest annually if its market price is $750?
In: Finance
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A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a sure rate of 5.9%. The probability distributions of the risky funds are: |
| Expected Return | Standard Deviation | |
| Stock fund (S) | 20% | 49% |
| Bond fund (B) | 9% | 43% |
| The correlation between the fund returns is .0721. |
|
What is the expected return and standard deviation for the minimum-variance portfolio of the two risky funds? (Do not round intermediate calculations. Round your answers to 2 decimal places.) |
| Expected return | % |
| Standard deviation | % |
In: Finance
(Bond valuation) You own a 15-year, $1 comma 000 par value bond paying 6.5 percent interest annually. The market price of the bond is $750, and your required rate of return is 11 percent.
a. Compute the bond's expected rate of return.
b. Determine the value of the bond to you, given your required rate of return.
c. Should you sell the bond or continue to own it?
a. What is the expected rate of return of the
15-year,$1,000 par value bond paying
6.5 percent interest annually if its market price is
$750?
In: Finance
Assume that Walmart is considering opening a store in Argentina. Argentina is rate BB-, and its dollar-based bonds trade at a default spread of 3% over the US treasury bond rate of 6.5%. The Argentine equity market is 1.8 times more volatile than the Argentine long-term bond market. Walmart has a beta of 0.9 (already relevered to account for the Argentinian tax rate of 35% and Argentinian D/E ratio). The market risk premium in the United States is 5.5%. The firm intends to borrow in Argentina at a local rate of 12% (in pesos) and maintain a debt ratio of 25% for Argentine projects. You can assume that the inflation rate in the United States is 3% whereas it is 9% in Argentina.
(a) Explain what we mean by “the inflation rate” in the above description.
(b) Estimate the cost of equity and the cost of capital in dollar terms for the Argentine store.
In: Finance
Bob Orleans invested $3,000 and borrowed $3,000 to purchase shares in Verizon Communications. At the time of his investment, Verizon was selling for $16 a share.
a. If Bob paid a commission of $40, how many shares could he buy if he used only his own money and did not use margin?
b. If Bob paid a commission of $80, how many shares could he buy if he used his $3,000 and borrowed $3,000 on margin to buy Verizon stock?
c. Assume Bob did use margin and paid a commission of $80 to buy his Verizon stock. Also, assume he paid another $80 to sell his stock and sold the stock for $22 a share. How much profit did he make on his Verizon stock investment? (Use the rounded number of shares computed in part b. Round your answer to 2 decimal places.)
In: Finance