Q2 - Q2 It cannot be ignored The company gets involved in...

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Q2. It cannot be ignored. The company gets involved in trading its own shares when it makes an issue of stock to raise capital and when it repurchases its own shares to decrease the excess capital. Therefore the price of previously issued shares will affect the company’s financial decisions and repurchasing power from both markets. Q3. a) rBD= (1,000-P)/1,000*(360/n) 0.03= (1,000-P)/1,000*(360/90) P= 992.5 b) c) rBEY= (1,000-P)/P*(365/n) rBEY= (1,000-992.5)/992.5*(365/90) rBEY= 3.06% d) reff= (1+rBEY/(365/n))^(365/n)-1 reff= (1+3.06%/(365/90))^(365/90)-1 reff= 3.10% Q4. 11(a) at t=0, index= (90+50+100)/3= 80. At t=1, index= (95+45+110)/3= 83.33. The rate of return = (83.33- 80)/80= 4.16%. (b) When stock C sells for 110, the value of index= (95+45+110)/3= 83.33 After the spilt, the stock C sells for 55, the divisor is 83.33= (95+45+55)/d d= 2.34 (c) At t=2, index= (95+45+55)/3= 65 12(a) Stock Q0 P0 Market Value Q1 P1 Market Value A 100 90 9,000 100 95 9,500 B 200 50 10,000 200 45 9,000 C 200 100 20,000 200 110 22,000 t= 0, index= (9,000+10,000+20,000)/100=390.
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t= 1, index= (9,500+9,000+22,000)/100= 405 The rate of return= (405-390)/390= 3.85%
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