6.
Topic: Is Positive Beta Better Than Negative Beta?
A beta factor represents risk in a financial instrument or commodity. The risk involved here is volatility risk, which will give you an understanding of how the security is expected to move in the market. Understanding volatility can help you build portfolios that will meet investment goals.
· Explain the reasons for changes in beta and explain how one would use positive and negative betas to build a portfolio. Be sure to reference volatility.
· Please provide an example of negative beta.
7.
Topic: Treasury Bills Versus Treasury Notes and Changes in Interest Rates
The daily market transactions for Treasury instruments are in the billions. The current average daily volume of "Treasuries" is approximately $150 billion. Like you, corporations may have extra cash to invest.
In this case, you, as a finance manager, are considering investing $50,000 in either a Treasury bill that you will renew every 6 months or in a 5-year Treasury note that you will hold until maturity. Current interest rates are expected to increase.
Would you invest in the Treasury bill or Treasury note? Remember that the primary duty of company management is to increase shareholder value. Will either of these investments accomplish this goal? Please show your math supporting your decision here.
8.
Topic: Presentation to the Board of Directors, the Pros and Cons of Debt Financing
The calculation of the after-tax cost of debt versus the cost of equity plays a major role in managing capital costs for a company. Knowing the difference between the cost of debt and the cost of equity would determine how you would manage the cost of capital within a company.
You are the CFO of a company that is considering issuing its first bond issue to the public.
You have been asked to present a few matters related to debt (bond) financing to the board of directors.
Please briefly explain to the board: (1) the usual collateral position of bondholders (lenders) versus equity investors, (2) why common stockholders can demand a higher rate of return than lenders, and (3) why you would suggest debt (or equity) financing.
