8. What are the different kinds of risk in finance. 9. You currently have AED90,

Question

8. What are the different kinds of risk in finance.

9. You currently have AED90,000 and plans to purchase a 6-year certificate of deposit (CD). How much will you have when the CD matures if it pays 7% interest, compounded annually? 10. Norwegian Adventures offers a 7% coupon bond with annual payments. The yield to maturity is 8% and the maturity date is 7 years from today. What is the market price of this bond if the face value is $1,000?

11. A 10-year government bond with a face value of $ 1,000 pays a coupon of 8% annually. The compounded interest rate is 9%.

a) Calculate the present value of the bond.

b) Generate a table showing how the bond’s present value changes for annually compounded interest rates between 1% and 15%.

c) What can you deduce about the relationship between the bond price and the yield to maturity (YTM)?

12. a). State whether True or false? Explain The value of share equals the discounted stream of future earnings per share.

b). Consider the following two stocks:

a. Stock A is expected to provide a dividend of $10 a share forever.

b. Stock B is expected to pay a dividend of $5 next year. Thereafter, dividend growth is expected to be 4% a year forever. If the market capitalization rate for each stock is 10%, which stock is the most valuable? What if the capitalization rate is7%?

Explanation / Answer

8)

Following are the types of risks in financial risk:

1) Market Risk: Market risk arises due to movement of market prices of the securities. Interest rate risk and exchange rate risk are also types of market risk which arises due to changes in interest rate an exchange rate.

2) Credit Risk: Credit risk arises due to borrowers not being able to pay back the interest and principle it borrowed.

3) Liquidity Risk: Liquidity risks arises when there is the inability to complete a particular transaction. For example liquidity risk in the stock market arises when there are multiple sellers of stock but there are very few buyers of the stock.

4) Operations Risk: It arises due to the failure of the internal processes, people, and systems. Fraud risk is one of the operational risk.

5) Legal Risk: Legal risks arises due to the legality of the processes at the company. This risk arises when someone file suit against the company.

Related Questions

Navigate

• Browse (All)
• Browse 8
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.