Exercises needed with detailed explanation: Book: Principles of Managerial Finance

Cap. 6 -1, 2, 3 (interest rate)

Cap. 8 - 1, 2, 3 , 6, 7, 8, 11, 13 (risk and return)

Cap. 9 - 1, 2, 3, 13, 14 (the cost of capital?

book 14th edition

REVIEW QUESTIONS 6-1 What is the real rate of interest? Differentiate it from the nominal rate of interest for the risk-free asset, a 3-month U.S. Treasury bill. 6-2 What is the term structure of interest rates, and how is it related to the yield curve? 6-3 For a given class of similar-risk securities, what does each of the follow- ing yield curves reflect about interest rates: (a) downward sloping, (b) upward sloping, and (c) flat? What is the "normal" shape of the yield curve? REVIEW QUESTIONS 8-1 What is risk in the context of financial decision making? 8-2 Define return, and describe how to find the rate of return on an invest- ment. 8-3 Compare the following risk preferences: (a) risk averse, (b) risk neutral, and (c) risk seeking. Which risk preference is most common among financial managers? 18 slds 8-6 What relationship exists between the size of the standard deviation and the degree of asset risk? 8-7 What does the coefficient of variation reveal about an investment's risk that the standard deviation does not? REVIEW QUESTIONS 8-8 What is an efficient portfolio? How can the return and standard deui tion of a portfolio be determined? 8-9 Why is the correlation between asset returns important? How does di versification allow risky assets to be combined so that the risk of the portfolio is less than the risk of the individual assets in it? 8-10 How does international diversification enhance risk reduction? When might international diversification result in subpar returns? What are political risks, and how do they affect international diversification? w mo REVIEW QUESTIONS 8-11 How are total risk, nondiversifiable risk, and diversifiable risk related? Why is nondiversifiable risk the only relevant risk? 8-12 What risk does beta measure? How can you find the beta of a portfolio? 8-13 Explain the meaning of each variable in the capital asset pricing model (CAPM) equation. What is the security market line (SML)? 8-14 What impact would the following changes have on the security market REVIEW QUESTIONS 9-1 What is the cost of capital? 9-2 What role does the cost of capital play in the firm's long-term invest- ment decisions? How does it relate to the firm's ability to maximize shareholder wealth? 9-3 What does the firm's capital structure represent? 9-4 What are the typical sources of long-term capital available to the firm? REVIEW QUESTIONS 9-13 What is the weighted average cost of capital (WACC), and how is it calculated? 9-14 What is the relationship between the firm's target capital structure and the weighted average cost of capital (WACC)? set aights to calculate the