Q1. a) Explain the followings with one hypothetical example (I don't mean just definitions):

1) Proxy. 2) Initial public offerings. 3) Operating Assets. 4) Seasoned equity offerings. 5) Free Cash flow. 6) Effective annual rate. 7) Capital gain yield. 8) Dividend yield 9) Efficient market hypothesis. 10) Debentures.

b) Kindly Provide brief answers to the following:

i. Preferred stock is a hybrid security, explain.

ii. If there is a decline in interest rates, which would you rather be holding, long-term bonds or short-term bonds? Why? Which type of bond has the greater interest-rate risk?

iii. One of your best friends, an expert in finance, has just given you the following advice: "Long-term bonds are a great investment because their interest rates are over 20-25 %." How do you evaluate this statement? Is your friend necessarily correct?

iv. What is the difference between bonds with call- provisions and sinking-fund provisions? Which one is riskier from investors (holders) point of view?

v. Suppose International arbitration court imposes a fine of $ 2 billions on a country, what are the likely effects of this event on the bond yields and bond prices of that country.

vi. If required rate of return is higher than expected return of a security, is this security overvalued or undervalued? Will you buy this asset or sell it?