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Problem:
(a) Companies A and B differ only in their capital structure. A is financed by 30 percent debt and 70 percent equity; B is financed 10 percent debt and 90 percent equity. The debt of both companies is risk-free.
(i) Rosencrantz owns 1 percent of the common stock of A. What other investment package would produce identical cash flows for Rosencrantz?
(ii) Guildenstern owns 2 percent of the common stock of B. What other investment package would produce identical cash flows for Guildenstern?
(iii) Show that neither Rosencrantz nor Guildenstern would invest in the common stock of B if the total value of company A were less than that of B.
(b) "Modigliani and Miller totally ignore the fact that as you borrow more, you have to pay higher rates of interest." Explain carefully whether this is a valid objection.
QUESTION 1 (a) Explain how CAPM provides a framework for measuring the systematic risk of an individual security in a well-diversified portfolio, using the concept of security
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Question 1: What are the main predictions of the Capital Asset Pricing Model (CAPM)? Discuss the role and significance of the assumptions needed to obtain the predictions.
How can the role of government in development be assessed? Increasingly governments are judged through the outcome of their policies within achieving above average development
characterestic of economics
Question: Extract of the Speech by Mr Thomas Jordan, Chairman of the Governing Board of the Swiss National Bank, at the Swiss Banking Global Symposium, Zurich, 16 November 2012
Explain the elasticity of price expectations?
What is Monopoly and how does it affect the economic postively and negatively?
QUESTION Explain the relationship between scarcity, choice and opportunity cost. "In a capitalistic system, Consumer Sovereignty is the key". Explain and discuss this sta
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