International Financial Management
14th Edition
ISBN: 9780357130698
Author: Madura
Publisher: Cengage
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Throughout the 1990s, the equity premium fell considerably especially in the USA. One conceivable reason for that change is a decrease in investors' required rates of return.
What elements and dynamics may have led to a drop in the required rate of return during the 1990s?
Which of the following is an example of unsystematic risk?
XYZ corp stock price fell when the news of a drop in GDP was released.
When the new employment numbers showed the economy is creating more jobs, the stock market rose.
ABC Manufacturing stock price falls upon the announcement that they have a parts shortage from their suppliers
When news of strong consumer demand was released, proctor and gamble stock price rose
The stock market rose at the announcement of higher GDP numbers
1. Suppose that a financial institution has a negative $25 million difference between its assets and liabilities. Is the institution exposed to refinancing risk or reinvestment risk and what will happen to net income if there is a rise in interest rates?
2. Suppose a financial institution has a positive $25 million difference between its assets and liabilities. Is the institution exposed to refinancing risk or reinvestment risk and what will happen to net income if there is a drop in interest rates?
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- Throughout the 1990s, the equity premium fell considerably especially in the USA. One conceivable reason for that change is a decrease in investors’ required rates of return. a) What is the equity premium? Explain in detail based on the class discussion.b) What is the required rate of return? Explain in detail based on the class discussion.c) What elements and dynamics may have led to a drop in the required rate of return during the 1990s? Discuss in detail.d) Explain vigilantly how these factors lead to declining equity premiums. e) Explain carefully how and why a decline in the required rate of return affects stock values and returns. f) If above average returns during the late 90s were due to declining equity premiums, explain thoughtfully why investors expecting above-average returns in the future may be disappointed. '' i only need the answers of d,e and f please ''arrow_forwardThroughout the 1990s, the equity premium fell considerably especially in the USA. One conceivable reason for that change is a decrease in investors’ required rates of return.a) What is the equity premium? Explain in detail based on the class discussion.b) What is the required rate of return? Explain in detail based on the class discussion.c) What elements and dynamics may have led to a drop in the required rate of return during the 1990s?Discuss in detail.d) Explain vigilantly how these factors lead to declining equity premiums.e) Explain carefully how and why a decline in the required rate of return affects stock values and returns.f) If above average returns during the late 90s were due to declining equity premiums, explain thoughtfullywhy investors expecting above-average returns in the future may be disappointed.arrow_forwardWhich would indicate that hyperinflation exists? a. Sales on credit are at lower prices than cash sales. b. Inflation is approaching or exceeds 20% per year. c. Monetary items do not increase in value. d. People prefer to keep their wealth in nonmonetary assets or a stable foreign currency.arrow_forward
- Which of the following is a diversifiable risk? Multiple Choice The risk that the economy will go into a recession The price of oil rising The risk that a company's CEO is killed in a plane crash Inflation The corporate tax rate rising by 5%arrow_forwardCritical analysis Why would haircuts on collateral increase sharply during a crisis? How would this lead to fire sales on assets? (120 Words) How can financial liberalizations lead to a financial crisis? (100 Words)arrow_forwardjust need answer thanks ! please quickly! 38 The dollar fell when Paul Volcker resigned as Fed chairman because: A. U.S. interest rates rose B. Expectations of future u.s. Economic growth slowed C. The perceived risk of holding dollars rose D. Monetary policy became less expansionaryarrow_forward
- Throughout the 1990s, the equity premium fell considerably especially in the USA. One conceivable reason for that change is a decrease in investors’ required rates of return. Explain carefully how and why a decline in the required rate of return affects stock values and returns.arrow_forward1) Which of the events described below represent systematic-risk events? (There may be more than one or none.) Y a) Congress voting in favor of a corporate tax rate decrease b) Renewal of subsidies for ethanol producers in rural Iowa c) Google winning a Department of Defense contract for cloud computing d) Increase in the productivity of U.S. workers through better use of IT e) Decrease in the global price of natural gas because of the development of fracking f) Development of a new shatter-proof cell phone screen g) Increase in the 10-year Treasury bond rate Focus MacBook Pro I &arrow_forward[Question 20 Which one of the following is an example of unsystematic risk? Select one: A. Decrease in the national level of inflation B. An across the board increase in income taxes C. National decrease in consumer spending on entertainment D. Adoption of a national sales taxarrow_forward
- Why is the present value of an amount lesser than its value that is to be received (paid) in the future? a.Deflation causes investors to lose purchasing power when their pesos are invested for greater than one year. b.Investors have the opportunity to earn positive rates of return, so any amount invested today should grow to a larger amount in the future. c.Investments generally are not as good as those who sell them suggest, so investors usually are not willing to pay full face value for such investments, thus the price is discounted. d.Because investors are taxed on the income received from investments they never will buy an investment for the amount expected to be received in the future. e.None of the choices is a correct answer.arrow_forwardWhich of the following could trigger an expansion? a. sudden cutback in investment spending b. large increase in oil prices c. large decrease in oil prices d. financial crisisarrow_forwardWhich of the following statements most accurately describes the relationship between the economic health of a nation and credit spreads? A. Credit spreads increase during an expanding economy because corporations are expected to have volatile earnings. B. Credit spreads and economic well-being are not correlated. C. credit spreads increase during an expanding economy because corporates invest in more speculative projects. D. Credit spreads decrease during an expanding economy because corporate cash flows are expected to rise.arrow_forward
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