Statistics and Risk Management
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1 Statistics and Risk Management Forecast Data Video URL: jukebox.esc13.net/untdeveloper/videos/forecast%20data.mov Vocabulary List: Capital Structure: how a company organizes its debt-to-equity ratio Bonds: a certificate of debt issued by an entity, repayable at a fixed interest rate to the bondholder, who acts as the lender. Maturity Date: the date of the final payment of principle and interest on a loan or bond. Discount Bond: a bond that is sold at a price that is less than the bond s face value. Premium Bond: a bond that is sold at a price that is more than the bond s face value. Municipal Bonds: a bond issued a local government entity. Common Stock: a share of the ownership of a company that can increase or decrease in value. Preferred Stock: a bond-like share of a company s ownership that pays a fixed dividend. 1
2 Resources: Convertible Bonds and other Convertible Securities Basic definitions and a link to a case study involving convertible bonds. Equity Financing While most business owners are familiar with traditional financing available through local banks, there are many other sources of capital that can meet your needs for growth and expansion. Introduction Sources of Finance This article explores the different sources of internal and external financing along with multiple other sources of financing. It provides descriptions and or links to descriptions to the different types of internal and external sources for further reading. 2
3 Forecast Data Practice Test Name: DECIDE IF THE FOLLOWING LISTED IS AN ASSET OR LIABILITY: 1. Cash 2. Accounts Payable 3. Inventory 4. Accounts Receivable 5. Short Term Notes 6. Accrued Expenses MATCHING: A. Bond B. Preferred Stock C. Common Stock D. Stock Split E. Shares 7. A form of equity security that represents the residual ownership of the firm 8. Units of ownership 9. A stock dividend exceeding 25% of the number of shares currently outstanding 10. Class of stock that pays fixed and regular interest income, instead of a dividend 11. A long term promissory note issued by a borrower, promising to pay the owner of the security a predetermined amount of interest each year 3
4 Forecast Data Practice Test Name: MULTIPLE CHOICE: 12. The money used to pay for the everyday trading activities carried out by the business. A. Finances B. Working Capital C. Personal Savings D. Operations 13. Short term sources of finance such as stocks, debtors and cash the business has at any one time are defined as. A. Current Assets B. Working Capital C. Current Liabilities D. Operations 14. Short term requirements for cash including trade and expense creditors or tax and dividend owing are defined as. A. Current Assets B. Working Capital C. Current Liabilities D. Operations 15. The of a share is the issue value of the share. A. Premium B. Par C. Nominal Value D. Market Value 16. The of a share is the amount at which a share is being sold on the stock exchange. A. Premium B. Par C. Nominal Value D. Market Value 17. is the legal agreement between the firm issuing the bonds and the bond trustee who represents the bondholders. A. Indenture B. Priority of Claim C. Par Value D. Call Provision 18. The provides the issuer of the bond with the right to redeem or retire a bond before it matures. A. Indenture B. Priority of Claim C. Par Value D. Call Provision 19. is the principal that must be repaid to the bondholder at maturity. A. Indenture B. Priority of Claim C. Par Value D. Call Provision 20. The ratio of the annual interest payment to the bond s current market price is the. A. Par Value B. Face Value C. Current Yield D. Call Provision 4
5 Forecast Data Practice Test Key 1. A 2. B 3. A 4. A 5. B 6. B 7. C 8. E 9. D 10. B 11. A 12. B 13. A 14. C 15. C 16. D 17. A 18. D 19. C 20. C 5
6 Student Assignment 11.1a Using Corporate Bonds Name: As the Vice President of Financial Operations for a New GMC Truck Dealership, you have been assigned the task of determining what kind of operational capital will be needed. You have estimated sales for the first 6 months of $5,500, You expect a 6 month payroll of $300, Other Expenses for 6 months of $200, You have to buy $7,000, of inventory that will be delivered over the six months. However, General Motors has a floor plan where you have to pay about $1,000, per month for the vehicles. Using these figures, how much cash would you have at the end of the six months assuming you had $1,000, in cash to start out with. Should you borrow more to fund the remaining operations for the fiscal year? What are your explanations for your conclusions? 6
7 What are your explanations for your conclusions? Student Assignment 11.2a Using Corporate Bonds Name: As CFO of a large Corporation you are charge will be selling corporate 10 year bonds with a face value of $20,000, The bonds will pay investors 6.75% per year. However, the brokerage company will receive 1% for handling the bonds and the bonds sold with a discount of 4.23%. How much did you initially raise from the sales of these bonds (less fees and discount)? What was the amount of interest on the bonds you will pay for each of the 10 years? What is the effective rate of interest based upon the discounted yield for each of the three years? 7
8 Student Assignment 11.3a Using Corporate Stocks Name: Your company has been very successful. The company s common stock price has reflected your success. Currently, a single share of your company sells for $ Your board of directors believes that the stock price is too high for the average investor to find appealing. They have suggested a stock split of 3 to 1. You company has 1,300,000 shares of capital stock on hand. They have issued 2,700,000 shares through IPOs in the past. After they split the stock value by 3 by issuing 3 shares for every one that exists, what will be the immediate value of a share? Because the shares are more affordable, the price of the individual share rises to $ within a month. How much total value has your company made on the shares of capital stock they have in their treasury from this increase? The administrative cost of the Stock Split was $500, Was the split worth it to your Company? 8
9 Explore Activity: Technology In the assignments for this section you explored different aspects of finance for different circumstances. For this Explore More, you are going to set up an Excel spreadsheet to answer the questions in Assignments 11.1a-11.3a. In addition to producing the spreadsheet, you will write a short paper (no more than one page) in which you show and describe the formulas you used for each assignment. 9
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