# Mary and Susan are a married same sex couple. They have been married for…

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Mary and Susan are a married same sex couple. They have been married for 25 years and own their own home. Their home is valued at $850,000 and they have a $200,000 mortgage. Mary will be 50 this year and Susan will be 45 this year. Mary works for Bell Canada and earns $125,000 per year. She is a member of a DBPP that will provide her with a pension of $60,000 per year at age 65. Mary contributes 6% of her salary to the DBPP annually. This contribution is matched by Bell Canada. The pension entitlement represents 2% of her salary over the best 5 years of employment.Susan works as an office administrator for ABC Company and does not have any form of pension plan. Susan earns $45,000 per year. Their number one goal is retirement planning. Mary loves her job and plans on working until she is 65. Susan wants to retire when Mary does so that they can enjoy retirement and travel extensively.There assets and liabilities are as follows. Mary RRSP $25000Susan RRSP $13,000Susan Spousal RRSP $275,000Mary Income $125,000Susan Income $45,000Home Value $800,000Mortgage $200,000Mary TFSA $55,000Susan TFSA $10,000 Assume you are Mary and Susan’s financial planner and that Mary and Susan have hired you to complete retirement plan for them.Which of the following represents the first step in the financial planning process?a) Setting goalsb) Analyzing datac) Providing solutionsd) Establishing the Client Planner RelationshipAs an advisor you recommend that Mary maximize her RRSP into her personal RRSP on an annual basis because she is in a higher marginal tax rate than Susan. Is this the best strategy? If so why? if not please offer an alternative strategy and explain why it is a more appropriate strategy.a) Trueb) False Given Mary’s income in 2018 is $125,000 and based on the information provided how much would Mary accumulate in RRSP eligibility in 2019. Assume an RRSP contribution maximum in 2019 of $26,500.a) $22,500b) $18,750c) $600d) $0How much is Mary’s benefit entitlement for RRSP calculation purposes?a) $22,500b) $600c) $2500d) $21,900 How much RRSP eligibility would Susan accumulate in 2019?a) $9000b) $8100c) $7950d) $9540What ages should you use for the retirement projections you prepare for Mary and Susan?a) Mary’s age for bothb) Susan’s age for both c) Mary’s retirement age and Susan’s life expectancyd) Susan’s retirement age and Mary’s life expectancyExplain why you chose the answer you chose. How much would Mary contribute to CPP in 2018? Assume the YMPE is $57,500a) $5346b) $2054.25c) $2673d) $12,375How much would Susan contribute to CPP in 2018? Assume the YMPE is $57,500a) $4455b) $2673c) $5346d) $2054 As Mary and Susan’s financial planner which of the following strategies would you recommend to them?a) Maximize both of their RRSP’s before doing other savingsb) Maximize both of their TFSA’s before doing other savingsc) Maximize their RRSP’s and use the tax refund to fund their TFSA’sd) None of the aboveExplain why you chose this strategy. At what age will Mary and Susan be forced to convert their RRSP’s into a RRIF or annuity?a) 69b) 65c) 71d) 68Assume Susan decides to RRIF her RRSP at the age of 65. If the value of her RRIF at the beginning of that year is $57,500 how much is the minimum she has to take from the RRIF in that year?a) There is no minimumb) $0c) $2300d) $2500 At age 67 Susan withdraws $27,500 from a RRIF created by the spousal RRSP. Assuming Mary had contributed to the spousal RRSP up until Susan had turned 60 how much of the withdrawal would be attributed back to Susan as taxable income?a) $27,500b) Only the minimum portion of the withdrawalc) Only the amount above the minimum portion of the withdrawald) $0

Southern Stone Corp is considering a change in its capital structure. Currently, it is an all-equity firm with 19,300 shares

Southern Stone Corp is considering a change in its capital structure. Currently, it is an all-equity firm with 19,300 shares of stock outstanding and a total market value of $358,000. Based on its current capital structure, the firm is expected to have earnings before interest and taxes of $29,000 if the economy is normal, $16,400 if the economy is in a recession, and $41,600 if the economy booms. Ignore taxes. The management is considering issuing $89,800 of debt with an interest rate of 8 percent. If the firm issues the debt, the proceeds will be used to repurchase stock. What will the earnings per share be if the debt is issued and the economy booms?Multiple Choice -$2.03 -$2.38 -$2.75 -$2.58 -$1.51

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Target Electricals is going to change its capital structure. Currently, it is an all-equity firm. It has 6,100 shares of

Target Electricals is going to change its capital structure. Currently, it is an all-equity firm. It has 6,100 shares of stock outstanding at a market price of $16 per share. The CFO of the company has decided to issue $48,000 worth of debt at an interest rate of 8 percent. An appropriate number of shares of the outstanding stock of the company will be repurchased so that there is no change in the assets of the company. What are the earnings per share at the break-even EBIT?rev: 10_31_2019_QC_CS-188725Multiple Choice -$2.73 -$2.60 -$1.54 -$2.52 -$1.28

You work for an Australian bank. Your bank issues a one-year CD at 5% annual interest in Australia to finance

Finance Assignment Writing ServiceYou work for an Australian bank. Your bank issues a one-year CD at 5% annual interest in Australia to finance a ¥200,000 Chinese bond, which has a 2-year maturity and is selling at par. It pays a fixed rate at 7% annually. You expect to liquidate your position in one year. Currently, spot exchange rates are $0.8 per Chinese Yuan.What is the end of year profit or loss (in Australian $) on the bank’s position if in one year the exchange rate falls to $0.55 per Chinese Yuan? (Assume no change in interest rates.)

The following data on a merger are given: Firm A Firm B Firm AB Price per share$100 $10 Total earnings$500

The following data on a merger are given: Firm A Firm B Firm AB Price per share$100 $10 Total earnings$500 $300 Shares outstanding 100 40 Total value$10,000 $400 $11,000 Firm A has proposed to acquire Firm B at a price of $20 per share for Firm B’s stock. Calculate the NPV of the merger.Multiple Choice$600$400$200$150

USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) 1 to 3. Jackie has a margin account with a balance of

USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) 1 to 3. Jackie has a margin account with a balance of $150,000. If the initial margin deposit is 60 percent and Turtle Industries is currently selling at $50 per share: 1. How many shares of Turtle can Jackie purchase? 2. What is Jackie’s profit/loss if Turtle’s price after one year is $40? 3. If the maintenance margin is 25 percent, to what price can Turtle Industries fall before Jackie receives a margin call? USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) 4 to 6. Heidi Talbott has a margin account with a balance of $50,000. If the initial margin deposit is 50 percent, and RC Industries is currently selling at $50 per share: 4. How many shares of RC can Heidi buy? 5. What is Heidi’s profit if RC’s price rises to $80? 6. If the maintenance margin is 25 percent, to what price can RC Industries stock price fall before Heidi receives a margin call? USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) 7 to 9. Kathy Smith has a margin account with a balance of $60,000. If initial margin requirements are 80 percent, and Jackson Industries is currently selling at $40 per share: 7. How many shares of Jackson can Kathy buy? 8. What is Kathy’s profit if Jackson’s price rises to $50? 9. If the maintenance margin is 25 percent, to what price can Jackson Industries fall before Kathy receives a margin call? USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) 10 and 11 You decide to sell 100 shares of Davis Industries short when it is selling at its yearly high of $35. Your broker tells you that your margin requirement is 55 percent and that the commission on the sale is $15. While you are short, Davis pays a $0.75 per share dividend. At the end of one year you buy your Davis shares (cover your short sale) at $30 and are charged a commission of $15 and a 6 percent interest rate. 10. What is your dollar return on the investment? 11. What is your rate of return on the investment? USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) 12 and 13. You decide to sell 100 shares of Topgun Enterprises Inc. short when it is selling at its yearly high of $42.25. Your broker tells you that your margin requirement is 60 percent and that the commission on the sale is $20. While you are short, Topgun pays a $0.85 per share dividend. At the end of one year you buy your Topgun shares (cover your short sale) at $44 and are charged a commission of $20 and a 5 percent interest rate. 12. What is your dollar return on the investment? 13. What is your rate of return on the investment? PROBLEMS 14 TO 16 ARE INDEPENDENT OF ONE ANOTHER 14. Suppose you buy a round lot of DG Solutions stock on 60% margin when it is selling at $55 a share. The broker charges a 10 percent annual interest rate and commissions are 3 percent of the total stock value on both the purchase and the sale. If at year end you receive a $1.10 per share dividend and sell the stock for 55 5/8, what is your rate of return on the investment? 15. Suppose you buy a round lot of HS Inc. stock on 55% margin when it is selling at $40 a share. The broker charges a 10 percent annual interest rate and commissions are 4 percent of the total stock value on both the purchase and the sale. If at year end you receive a $0.90 per share dividend and sell the stock for 35 5/8, what is your rate of return on the investment? 16. Suppose you buy a round lot of Altman Industries stock on 50% margin when it is selling at $35 a share. The broker charges a 10 percent annual interest rate and commissions are 5 percent of the total stock value on both the purchase and the sale. If at year end you receive a $1.00 per share dividend and sell the stock for $42.63, what is your rate of return on the investment? USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) 17 and 18. You decide to sell short 200 shares of XCorp stock at a price of $75. Your margin deposit is 65 percent. Commission on the sale is 1.25%. While you are short, the stock pays a $1.75 per share dividend. Interest on margin debt is 5.25% per year. 17. At the end of one year you close out your short position by purchasing share of XCorp at $45 per share. The commission is 1.25%. What is your rate of return on the investment? 18. Suppose at the end of one year XCorp is selling at $90 per share and you cover your short position at this price. What is your rate of return on the investment? (Assume a 1.25% commission on the purchase.) USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) 19 to 23 Shares of RossCorp stock are selling for $45 per share. Brokerage commissions are 2% for purchases and 2% for sales. The interest rate on margin debt is 6.25% per year. The maintenance margin is 30%. 19. At the end of one year shares of RossCorp stock are selling for $55 per share and the company paid dividends of $0.85 per share. Assuming that you paid the full cost of the purchase, what is your rate of return if you sell RossCorp stock? 20. At the end of one year shares of RossCorp stock are selling for $35 per share and the company paid dividends of $0.85 per share. Assuming that you paid the full cost of the purchase, what is your rate of return if you sell RossCorp stock? 21. At the end of one year shares of RossCorp stock are selling for $55 per share and the company paid dividends of $0.85 per share. Assuming that you borrowed 25% of cost of the purchase, what is your rate of return? 22. At the end of one year shares of RossCorp stock are selling for $35 per share and the company paid dividends of $0.85 per share. Assuming that you borrowed 25% of cost of the purchase, what is your rate of return? 23. Assume that you purchase 150 shares of RossCorp stock at $45 each by making a margin deposit of 55%. At what price would you receive a margin call?

1: As a manager of a FI you consider implementing one of the following strategies: to use forward contracts

Question 1: As a manager of a FI you consider implementing one of the following strategies: to use forward contracts to hedge interest rate risk or to use futures contracts for hedging interest rate risk. Your risk analytic predicts a significant negative shock to interest rates and relatively stable forecast yields. Durations for these strategies are the same.a) Which strategy would you choose if current yield on bonds is the same as the current level of interest rates? Justify your answer.b) If initially you can buy or sell as many futures as you want would you choose a different strategy in part a)?Question 2:You are developing a strategy to manage interest rate risk of your portfolio using options on a bond.a) Explain how to use the Black-Scholes model for hedging during the period of crisis.b) Now you need to consider changes in interest rates that will happen only at year end every year. You do not know if interest rates will go up or down, but it can change only by 1 per cent. Show how to hedge interest rate risks over the two-year period using a 6 per cent 10-year T-bond, which is priced at par, $1000 and call options on 100 thousand $ with a strike price of 105$ and intrinsic value $1000.c) Using results from part b) compute an option premium if a discount factor is 4 per cent.Question 3:Suppose you consider implementing macrohedging with swaps for two different FIs. One financial institution is small, and another institution is big. Discuss how to implement the macrohedging strategies for these FIs.

a.Calculate the required rate of return for the un-levered firm. (2 marks) answer: 14.14%b.Calculate the market value of the un-levered

a.Calculate the required rate of return for the un-levered firm. (2 marks) answer: 14.14%b.Calculate the market value of the un-levered firm in proposition I. answer: 3394625.177c.Calculate the WACC for an un-levered firm in proposition II. answer: 14.14%d.Using the information from the table, calculate the value of the firm (proposition I), cost of equity, and the WACC (proposition II) each level of debt. (16 marks)e.Calculate the present value of distress. (4 marks)f. Graph (on 2 separate graphs) the information for proposition I and proposition II. (4 marks)g. Briefly explain the amount of debt the company should use as a levered company. (2 marks)To maximize the value of the firm and to minimize the WACC for the firm, the unlevered firm should issue $1,000,000 of debtPlease answer the questions from d to g ( filling the blank for questions d and e) Thank you!!!

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