Financial Management
FINANCIAL MANAGEMENT
SECTION A
PART ONE:
ANSWERS ONLY.
1.a)ignored non-corporate enterprise
2.c)redeemable preference shares
3.a)political risk
4.a)future cost
5.c)designing optimal corporate capital structure
6.b)firms point
7.d)agency cost
8.a)legal requirement
9.b)default risk
10.a)beta
PART TWO: 1. . Annuity is fixed sum of money paid every year in at any other fixed interval shorter than a year. This annuity may be by way of return of some principal plus interest payment of against money invested or by way of payment of other dues such as pensions after retirement. In any case it represents out flow of cash from one account to in flow of cash to another account. In this way all annuities involve movements of cash or funds. Therefore all annuities are cash flows that can be suitably represented in cash flow statements. An annuity will be represented as inflow of cash in the cash flow statement for the recipient of the annuity and out flow of cash in the cash flow statement of the person or firm paying out the annuity.
2. The risk of a security is measured in terms of variance or standard deviation of its returns. The portfolio risk is not simply a measure of its weighted average risk. The securities that a portfolio contains are associated with each other. The portfolio risk also considers the covariance between the returns of the investment. Covariance of two securities is a measure of their co-movement it expresses the degree to which the securities vary together. Thus an investor can minimize his risk on the portfolio.
3. Loan amortization is the process of paying back a loan over an extended duration of time along with the interest incurred. The interest to be paid for the amount borrowed, till the loan is completely repaid, is calculated in advance. This is divided by the total number of payments being made and added with the principal payments to arrive at an amount that consists of both the principal as well as the
SECTION A
PART ONE:
ANSWERS ONLY.
1.a)ignored non-corporate enterprise
2.c)redeemable preference shares
3.a)political risk
4.a)future cost
5.c)designing optimal corporate capital structure
6.b)firms point
7.d)agency cost
8.a)legal requirement
9.b)default risk
10.a)beta
PART TWO: 1. . Annuity is fixed sum of money paid every year in at any other fixed interval shorter than a year. This annuity may be by way of return of some principal plus interest payment of against money invested or by way of payment of other dues such as pensions after retirement. In any case it represents out flow of cash from one account to in flow of cash to another account. In this way all annuities involve movements of cash or funds. Therefore all annuities are cash flows that can be suitably represented in cash flow statements. An annuity will be represented as inflow of cash in the cash flow statement for the recipient of the annuity and out flow of cash in the cash flow statement of the person or firm paying out the annuity.
2. The risk of a security is measured in terms of variance or standard deviation of its returns. The portfolio risk is not simply a measure of its weighted average risk. The securities that a portfolio contains are associated with each other. The portfolio risk also considers the covariance between the returns of the investment. Covariance of two securities is a measure of their co-movement it expresses the degree to which the securities vary together. Thus an investor can minimize his risk on the portfolio.
3. Loan amortization is the process of paying back a loan over an extended duration of time along with the interest incurred. The interest to be paid for the amount borrowed, till the loan is completely repaid, is calculated in advance. This is divided by the total number of payments being made and added with the principal payments to arrive at an amount that consists of both the principal as well as the