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# Q21 - Q2.Chapter 1 Question 6 It cannot be ignored The...

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Q2.Chapter 1 Question 6 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. Shares are traded not only in primary market, but also in the secondary market. Therefore the price of previously issued shares will affect the company’s financial decisions and repurchasing power from both markets. Q3. Chapter 2 Question 7 a) rBD= (1,000-P)/1,000*(360/n) 0.03= (1,000-P)/1,000*(360/90) P= 992.5 b) 90-day return= (1,000-992.5)/992.5= 0.76% 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. Chapter 2 Question 11&12 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= 4.17%. (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

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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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Q21 - Q2.Chapter 1 Question 6 It cannot be ignored The...

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