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Question:
A proprietary life company issues only non-profit guaranteed growth bonds. The company invests only in equities with an expected return of 10% p.a, the risk free rate being 5% p.a. At the balance sheet date there were £100m of equities and growth bonds with a maturity value of £80m, the bonds all maturing in exactly one year's time.
(i) Assuming that the possibility of default by the insurance company may be ignored, calculate, using the result of Modigliani Miller for the cost of equity capital or otherwise, the appropriate risk discount rate to value the shareholder s interest in the portfolio of growth bonds
(ii) Explain the theoretical impact on the risk discount rate of allowing for the default of part or all of policyholder benefits.
(iii) (a) Describe what is meant by franchise value in the context of a life company.
(b) Explain in general terms how the franchise value varies with the amount of capital on the life company balance sheet.
You are evaluating a project which costs $720,000, has a four-year life, and no salvage value. Depreciation is straight-line and the half year rule does not apply. Sales are projec
Questikon: For Period Wilson Ltd has produced the following budget figures for Product X: For the period, the budgeted fixed overhead is Rs100,000 and the budgeted sales ar
Q. Show Advantages of financial intermediation? The advantages of financial intermediation are as follows Investors are able to pool their funds in a bank deposit account to
Robin Corporation accepted credit cards for $34,200 of services performed in October 2011.The credit card company charged a 3% service fee and paid Robin as soon as it received the
1. Think about the transactions listed below. a. A company obtains a $10,000 loan from a bank. b. A company purchases $15,000 of inventory from its suppliers. They paid $5,000 toda
I have one assignment of this course (diploma Financial Planning), can you help me in doing my assignment
explain inflationary accounting
Problem: (a) Many businesses find it useful to maintain a control account in respect of both their trade receivables and trade payables. Describe why such control accounts ar
Jensen Company has the following situation: Sales Price: $40 per unit Variable Cost Per Unit: $25 per unit Fixed Costs: $20,000 Units Sold: 4,000 Jensen is considering lowering the
Investment with ex. div. quotation Investment with ex. div. quotation will be debited to the investment account at its ex. div. value. The full impending dividend will also
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