Questions and Answers of Sport Funding And Finance

2 Describe the activities associated with the financial planning process. What are the benefits associated with these activities?
1 What is the goal of personal financial planning?
What are the skills and knowledge requirements for employees, and is there a sufficient pool of people to meet the firm’s requirements?
How will the business be affected by foreign competition, exchange rate fluctuations and offshore political activities such as trade barriers?
What is the firm’s commitment to research and development, and how does this compare with that of its competitors?
Does the industry have a strong technological base, and how will new technology changes affect the business?
Is the industry prone to fads and fashions and, if so, how will this affect operations?
How strong will competition be within the industry, and who are your competitors?
What are the issues facing the economy, and how will these affect the industry and the companies operating within it?
Is the economy and industry in a growth or a decline phase, and how long will the current phase continue?
Are you the right type of person to operate the business venture you have identified?
Are you able to cope in situations of uncertainty?
Are you able to use resources efficiently in order to minimise waste?
Do you have the ability to take the initiative when an exciting opportunity presents itself?
Are you receptive to feedback even when it is negative?
Could you cope with failure?
Do you have the knowledge and experience to undertake the venture?
Can you think outside the square?
Are you able to guess how much risk is acceptable to all participants (banks, clients, suppliers and employees)?
Do you have the ability to plan, to set goals to achieve certain objectives, and then achieve these goals?
Do you have the ability to solve problems which will arise persistently?
Do you have the confidence and ability to communicate with banks, clients and suppliers and achieve a successful outcome?
Do you have the drive and commitment to manage the business indefinitely?
■describe the components of a business plan and the reasons for developing this plan.
■evaluate a business opportunity, and outline the areas to investigate when preparing the preliminary evaluation of a business opportunity
■describe how to manage the financing of a house
■describe the range of savings options which can be used to finance retirement
■use money-management techniques
■establish personal financial goals and use appropriate techniques to ensure their attainment
■describe the process of making personal financial decisions
8 Fluctuations in the New Zealand dollar and petrol prices have affected the operations of Trans Tasman Tourism (TTT) over the past few years. The Chief Financial Officer considers that if tourist
7 The objective of diversification is to reduce the risk of a portfolio. Describe systematic and unsystematic risk in the context of diversification.
6 Describe the four forms of term structure of interest rates.
5 Five components make up the risk premium. List them, and describe each one.
4 A risk-free asset comprises two components. List these two components, and describe each one.
3 Refer to question 2 above. The returns computed for this question are nominal rates of return. If the expected inflation rate was 1.2%, compute the real rate of return.
2 A year ago you purchased shares in AB Supreme at $4.76 per share. Today their price is $7.10. During the year, dividends of 18 cents per share were received. Compute the holding period return and
1 Define risk and return.
4. The dairy industry is important to the New Zealand economy.Unfortunately, it is very difficult for farmers to predict the price they can expect to receive from Fonterra. The dairy industry has
3 When we introduced mean returns and standard deviations earlier in this chapter, we showed the annual returns and risks for Asset A and Asset B. This information is reproduced below:a Calculate the
2 An investment company has a number of portfolios available for clients to invest in. The financial assets contained in three of these portfolios are listed below.•Portfolio 1: Futures, property
1 a Calculate the holding period yields for Colonial Fruit Company Ltd (CFC) and Turangi Timber Mills Ltd (TTM) using the following information:
■describe the relationship between CAPM and the SML.
■explain the concept of diversification
■estimate ex-ante and ex-post risks and returns
■be able to calculate holding period returns and yields
■understand the importance of the trade-off between risk and return
■understand the nature and causes of risk
■appreciate that financial and real assets offer differing rates of return
■be able to identify the shapes of yield curves
■understand the difference between nominal and real rates of return
■understand the components of an expected return
23 A large New Zealand electricity company issues bonds that will mature to their face value of $100 in ten years. Find the value of the bond that will pay a semi-annual coupon interest rate of 8.4%
22 An investor wishes to buy a three-year bond with face value$100 that pays 9%-per-annum coupon interest rates, paid semi-annually. What is the current price of this bond if comparable market rates
21 A large insurance company is considering selling from its bond portfolio a ten-year bond paying 7.5% per annum when current market rates are 8.5% per annum. What is the bond’s current price if
20 You are a bond portfolio manager for a superannuation fund and are considering buying a fiveyear government bond, with a face value of $100 and paying 9% annual coupons. Given that current market
19 Suppose you are a loans officer with a bank. You approve an application for a loan of $50 000 at 9.00% compounded annually. Assuming the client is required to make seven equal yearly payments,
18 A woman purchased a house for $120 000. Her initial deposit was $20 000, and she agreed to make equal payments at the end of each year for 20 years. If the interest is 10%compounded annually, what
17 What price would you pay for an 11% government bond, maturing in 10 years, if you required a yield of 9.5% per annum compounded annually (assuming a face value of $1 000)? (Hint: Find the sum of
16 Find the present value of an investment that promises to pay$15 000 each year, forever, when the interest rate is 10%.
15 What happens to the present value of a perpetuity as the interest rate gets larger?
14 Simon Simple has saved $315 000 and is considering retiring.If he can invest his funds at 9% per annum, how much can he withdraw at the end of each year for the next 20 years without exhausting
13 You want to save for a deposit of $25 000 on a house in five years. Given an interest rate of 7.5% compounded annually over the period, how much should you invest at the end of each year (in equal
12 How much should you pay the insurance company for an annuity that will pay $7 500 at the end of each year for 15 years, assuming the interest rate over the period is 8% per annum?
11 What is the cash value of a car that can be bought for a $4 000 deposit and $800 payment every year for five years if the money is worth 10% compounded annually?
10 If a man wants to receive $2 000 at the end of each year for 20 years from a bank that pays 7% interest per annum over the same period, how much must he deposit in the bank now?
9 You hold a ten-year $100 face-value bond that pays you annual coupons of $7.25. Find the present value of the coupon stream if yields are currently 9.2% compounded annually. (Hint: Use only the
8 Find the total future amount if Reg Retiring deposits $2 000 at the end of each year for 40 years and the average interest rate over the period is 10% compounded annually.
7 What is the present value of an annuity of $1 200 paid annually over five years (with the first payment to be received at the end of the first year), and with a current yield of 9% per annum
6 What is the amount of an annuity at the end of three years if the size of each payment is $3 000, payable at the end of each year for three years, at an interest rate of 9% compounded annually?
5 Lisa Prudent deposits $1 000 in a bank at the end of each year. If the money earns 8% per annum over the term, how much will she have in her account at the end of eight years?
4 Compare the future value of a four-year ordinary annuity with that of a ten-year annuity where each has:a a regular payment of $500 a year and the interest rate is 8%per annum b a regular payment
3 A company is offered an opportunity to receive the mixed stream of cash flows shown here over the next five years. If the firm must earn 9% per annum on its investments, what is the most the
2 A financial asset pays its holder an annual payment of $90 for four years, and will also repay $1 000 at maturity. What is the current price of the financial asset if the market interest rates are
1 Consider the cash flows on the right. Find the present value of this cash flow stream, assuming an interest rate of 8%.
■prepare a repayment schedule for a reducible loan with annual payments.
■calculate the price of a fixed-interest bond
■value an infinite stream of equal cash flows
■calculate the regular payment for an annuity from both present and future values
■calculate the present and future values of an ordinary annuity
■calculate the future and present value of multiple cash flows
30 You can pay tax of $1 100 now or $1 150 in one month. What interest rate does this choice imply? What choice should you make if you can earn 12% for one year in your savings account?
29 You then negotiate your choice of $2 000 in two years or $1 600 now. What interest rate does this imply? Which would you choose if you can invest at 14% annual interest?
28 You are offered a choice of receiving $1 500 now, or $2 200 in three years’ time. What interest rate would make you indifferent as to whether you chose this present value or the future value?
27 Suppose you can delay your $1 500 tax payment now and pay tax of $1 800 in one year plus a penalty of $50. What interest rate must you earn to make it worthwhile to delay paying your tax for a
26 Lisa examined her first Visa card statement, for February. The statement listed the periodic rate of this month as 1.5%, and the corresponding annual percentage rate as 18%. Calculate her
25 Jessica’s goal is to become a millionaire. Today, her portfolio is worth $110 000. If she believes she can get 9% per annum on these funds without adding or withdrawing funds, how long will she
24 Bank A offers its depositors an interest rate of 7%compounded monthly, while Bank B gives its depositors an interest rate of 7.5%, compounded semi-annually. Which of the two banks makes the better
23 Find the effective rate if money invested at 10% is compounded quarterly in the money market.
22 If $1 000 is invested at 8% compounded quarterly for one year, what is the effective rate?
21 What is the effective rate of interest on a loan if the stated rate is 12% and the principal is compounded monthly?
20 David Debtor borrowed some money for five years. When the debt was due, he paid $12 500 for the money borrowed, and the interest charged. The interest rate was 9% compounded quarterly. How much
19 Find the price of a $500 000 zero-coupon bond which has four years to run, when the market yield is 10% per annum compounded semi-annually.
18 What principal will accumulate to $7 500 in six years at 9%compounded quarterly?
17 Jane Saver has $10 000 in her savings account at the end of three years. The interest rate is 12% compounded monthly.How much did she deposit in the account three years ago?
16 What is the present value of a payment of $12 000 to be received:a in three years?b in ten years, if the discount rate is 7%, and assuming semiannual discounting?
15 What is the present value of a payment of $11 000 to be received in four years if the discount rate is:a 8%, assuming semi-annual discounting?b 8%, assuming monthly discounting?c 11%, assuming
14 Find the compound amount when $10 000 is invested at 6%per annum compounded continuously for three years.
13 Find the compounded future amount in each of the following:a $5 000 for two years at 10% per annum compounded semiannually b $2 300 for one year at 8% per annum compounded quarterly c $1 150 for
12 What initial outlay will accumulate to $500 000 in 20 years at 9% compounded annually?

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