Question

In: Finance

In discussing the maturity model and the duration model, we talked a lot about the market...

In discussing the maturity model and the duration model, we talked a lot about the market value of equity.(i)What is meant by the market value of equity?(ii)What does it mean when the market value of equity is negative?(iii)Give examples of shocks that might cause the market value of an FI to become negative (whereas it was positive before the shock)?(iv)What factors could reduce the likelihood of an FI’s equity turning negative?

Expert Solution

1) Market value of equity can be defined as the total value of a companies equity. It is also known as market capitalisation. The measure of a companies value is calculated by multiplying the current stock price by total number of shares outstanding. Investors looking for buying companies can look the market value of company by checking the equity section of the balancesheet.

2) market value of equity is used by investors to determine or evaluate the financial health of a company. A negative value for equity comes when the liabilities exceeds the assets. some common reasons for this situation are the following.

a) Large didvdend payments.

b) Accumulated losses

c) Borrowing money

d) Ammortisation of intangible assets.

These are the main reasons which leads to the negative value of equity.

3) Shocks are the surprise events which may affect the investment in both negative and positive manner. Here we talk about the negative situation arising and few examples of that. Few negative shocks happening are the following.

a) Natural disasters

These unforseen events will affect the company in a bad manner. it can cause a lot of destruction and losses for the company which will defenetely affect the smooth functiong of the company.

b) Stock market crashes

Stock market crash can occur due to a lot of reasons in the economy. Anyway whatever the reason is, Once the stock market crash happens , The companies share value comes down which will defenitely make a negative impact on companies equity.

c) Terrorist attacks

This is a rare case but defenitely will cause a lot of losses to the company and will destroy the economy. This can also the affect the equity in a negative manner.

4) There a lot of factors to be kept in mind inorder to make our FI safe from becoming in to a negative equity. They are the following

a) Doesnt ignore the fundementals

b) Be careful of unnecessary risk taking

c) Proper debt restructuring

These are few points to be kept in mind inorder to protect company from becoming in to a negative equity situation.

jeff jeffy answered 1 year ago

In class we talked about the effects of cigarette smoking on birthweight. We defined a model...

In class we talked about the effects of cigarette smoking on birthweight. We defined a model E ( O | C = c ) = (β0)^1 + ((β1)^1 x c) where O is birthweight in ounces and C is cigarettes smoked per day. Suppose instead we used the model E(L|P =p)=(β0)^2 +((β1)^2 x p) where L is birthweight in pounds and P is packs of cigarettes smoked per day (there are 20 cigarettes in a pack). What is the relationship...

Early on in the course we talked about Porter's Five Forces Model. Describe two of the...

Early on in the course we talked about Porter's Five Forces Model. Describe two of the 5 forces and in what circumstances this analysis would be useful to a company.

During the semester, we talked a lot of impact of People, Process and Technology. All of...

During the semester, we talked a lot of impact of People, Process and Technology. All of the above come together to either help Enterprises thrive in business or vanish. One important point of intersection is the relationship between the Enterprise Structure and Culture. There is a general assumption that the Enterprise structure and Enterprise culture impact each other. In a domain of your choice, with examples, First, outline the mechanism through which Enterprise Culture impacts the design of Enterprise Structure,...

1. This week we talked about how a free market can achieve an efficient outcome when...

1. This week we talked about how a free market can achieve an efficient outcome when demand curves reflect total willingness to pay (WTP) for a good and supply curves reflect total social cost of producing the good. But those conditions are often not met, such as when production of the good creates negative externalities. If Farmer Ben produces apple cider and dumps his apple waste into the creek behind his barn, what negative externality might that create? Make up...

When we are discussing Two-Way ANOVAs, what do we mean when we talk about a mixed-model...

When we are discussing Two-Way ANOVAs, what do we mean when we talk about a mixed-model design? There is an advantage to doing a Two-Way ANOVA rather than two One-Way ANOVAs. What is it?

We spent a lot of time in class discussing Return on Assets (ROA) and in particular...

We spent a lot of time in class discussing Return on Assets (ROA) and in particular the DuPont method. This is of course a key measure used externally to compare companies and their relative performance and internally to measure management on their effective use of assets. However it is not a perfect measure. Different companies have different strategies. Let’s use the Jewelry business as a first example. First consider Tiffany. They are very exclusive and expensive and I would guess...

We spent a lot of time discussing and studying the impact of political hacking in elections....

We spent a lot of time discussing and studying the impact of political hacking in elections. What is being done to ensure that its impact does not impact the validity of the 2020 election? What preventions are in place? Being almost a month out from November 3rd election day, are we ready? Research this question and answer it .

This week we are learning about atomic physics. At some point we talked about photons. Do...

This week we are learning about atomic physics. At some point we talked about photons. Do some research about photons and share your findings with your group about photons, what they are, why scientists introduced them, and what they do in our understandings of the nature of light.

As we talked about the Software Development Lifecycle. We approached it from the standpoint of where...

As we talked about the Software Development Lifecycle. We approached it from the standpoint of where security needs to be added to the SDLC. When code is insecure, it introduces vulnerabilities that get exploited. As security practitioners, this is where we come into the equation. However, that being said - we should be advocates for security in the development phase because it will make everyone's life easier once the software is deployed. We have to make a conscious effort to...

In this course, we have talked about four uses of empowerment and participation. We said they...

In this course, we have talked about four uses of empowerment and participation. We said they are part of delegation, used to overcome resistance to change, used to overcome resistance to control, and used for motivation. Now, explain why empowerment and participation work in all of these areas.