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An investor, who wants to sell a bond even before it reaches its maturity date, would be concerned as to whether he will receive a price that is close to the true value of the issue. True value is indicated by a recent transaction. For example, let us consider that an investor wants to sell bond X; of late, the issue has been trading between Rs.100 and Rs.101. (A selling price between Rs.100 and Rs.101 is considered as the true value of the issue). The investor would expect to sell the bond somewhere between these prices. If the market conditions change, there is always a risk that the investor will not be able to sell at this price. The risk that the investor will have to sell a bond below its true value is referred to as liquidity risk. Liquidity can be measured as the size of the spread between the bid price and the ask price. A narrow bid-ask spread results in a lower liquidity risk while a wider bid-ask spread results in a greater liquidity risk.
A company borrows $1,500,000 at LIBOR plus a lending margin of 1.25 percent per year on a six-month rollover basis from a London bank. If six-month LIBOR is 4 ½ % over the first s
State the Examples of tests of controls: Check bank reconciliation has been reconciled as approved by chief accountant. Observe buyer checking the goods received note a
Breaks in Specific Cost of Capital: The specific costs of capital may also be affected by the amount of finance the firm wants to raise. As the amount of financing increases, the
The first step in valuation process is to estimate the cash flows that are expected to be received in the future. In debt securities, there are two types of possi
you would like to purchase a new car in 3 years.The current value of the vehicle you would like to purchseis 100000.The manufacturer of the vehicle has advised you,that the cost of
discuss the applicability
Q. Management of Working Capital? Working capital, in general practice, refers to the excess of current assets over current liabilities. Management of working capital therefore
State the Disadvantages of ias 14 risk and return approach Segments may include operations with different risk and returns. Difficulty in defining segments, which mak
Why do investors invest the lion’s share of their funds in domestic securities? Answer: Investors invest greatly in their domestic securities since there are major barriers to in
These debentures are backed by integrity and creditworthiness. They do not have any specific collateral backing. Therefore, the ability of the issuing GSE to gene
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