Free CMA Exam Braindumps (page: 159)

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Harrison's Spot scars is able k borrow at an annual rate of 7% for two years, using its automobile loans as collateral The loans are made from Nanto Acceptance Company, a whole owned subsidiary. It estimates that its overhaul return from car loans is 11%, once the return on the loans (6.9%) and economies realized from manifesting costs are factored into the analysis. If the average automobile loan is three years in length, what forward interest rate is implied by this homemade forward contract?

  1. 3.84%
  2. 7.82%
  3. 19.45%
    D 23.21%

Answer(s): C

Explanation:

The forward interest rate is found using the two time-related rates mentioned in the problem as follows:
{[(+ 3 year rate)3 .b (1 + 2 year rate)2] -- 1}. In the problem, the stated three-year rate is 11%. and the two-year rate is 7%, so the forward rate that this homemade forward contract implies is 19.45%. derived as follows:
{[(1 +.11)÷(1 ÷,07)2]_1}



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Which one of the following is not a determinant in valuing a can option?

  1. Exercise pence
  2. Expiration date.
  3. Forward contract price.
  4. Interest rate.

Answer(s): C

Explanation:

The exercise price, the expiration date, and the interest rate are all determinants in veiling a call option.



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The market price of Flesher Corporation's common stock is $100 per share, and each share gives its owner one subscription right. Five nights are required to purchase an additional share of common stock at the subscription price of $91 per share. If the common stock is currents selling "rights-on", the value of a right is closest to, in theory.

  1. $1.50
  2. $1.80
  3. $2.25
  4. $9.00

Answer(s): A

Explanation:

The formula for the value of a stock right when the stock price is rights-on follows:



View Related Case Study

The market price of Flesher Corporation's common stock is $100 per share, and each share gives its owner one subscription right. Five rights are required to purchase an additional share of common stock at the subscription price of $91 per share. The value of one share of Fleshers common stock when it goes ex-rights, in theory, is closest to

  1. $9100
  2. $A.2O
  3. $9850
  4. $100.00

Answer(s): C

Explanation:

The stock will decline in value by the van (use of the night. The theoretical value of a night is $1.50. Thus, the value of the stock should decline to $98.50 ($100.00 - $1.50),



Page 159 of 336



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