Which of the below incidents will lead to fall in market efficiency
a) American government banned short selling to avoid market fall after bankruptcy of Lehman brothers
b) Indian Government mandated the listed companies to disclose their Balance sheet at least once in six months compared to earlier limit of at least once in a year.
c) Chinese Government increased the limit for Foreign holding in their listed domestic companies.
Ans A: Banning of short selling will reduce market efficiency as it will restrict arbitrage opportunities.
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Razor Inc leased out a crane for five years at a rate of $7,200 per annum. The company was carrying the asset at asset at $30,000. The appropriate discount rate for Razor is 10.05%. Which of the below statement about this Lease is LEAST likely to be correct
a) The lease should be classified as a sale type lease and gain of $ 6000 should be recognized by Razor Inc
b) The Lease should be classified as Direct Financing type lease and no gain should be recognized.
c) In the first year of lease Razor's cash flow from financing would increase by $7200
Razor Inc leased out a crane for five years at a rate of $7,200 per annum. The company was carrying the asset at asset at $30,000. The appropriate discount rate for Razor is 10.05%. Which of the below statement about this Lease is LEAST likely to be correct
a) The lease should be classified as a sale type lease and gain of $ 6000 should be recognized by Razor Inc
b) The Lease should be classified as Direct Financing type lease and no gain should be recognized.
c) In the first year of lease Razor's cash flow from financing would increase by $7200
Answer A: If PV of CFs = Carrying value then the lease should be classified as Direct financing leasing in which case there would be no gain on sale of assets. Since the lease payments are paid at the beginning of the year during the first year the lease payment will not have any interest component, hence the entire amount would be classified as cash flow from financing.
A stable state company reported Total Assets of $2500 at the end of 2011 and $2850 at the end of 2012. Total Liabilities were 1200 in both the years. The net profit for the year 2012 stood at $ 425. The company did not witness any unrealized gain/loss during the year nor did it issue/ buyback equities. The sustainable growth rate of this company is closest to
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A stable state company reported Total Assets of $2500 at the end of 2011 and $2850 at the end of 2012. Total Liabilities were 1200 in both the years. The net profit for the year 2012 stood at $ 425. The company did not witness any unrealized gain/loss during the year nor did it issue/ buyback equities. The sustainable growth rate of this company is closest to
a) 4.5%
b) 25.8%
c) 23.7%
Answer C: Owner's equity in 2011 is 1300 and 2012 is 1650. Given that owner's equity could have increased only by retained earnings we can calculate dividend for the year as 1300+425-1650=75. Payout ratio = 17.5%. Average equity = 1475. RoE= 425/1475=28.8%. . Growth a (1-payout ratio) * RoE= 23.7%
The average runs scored by cricket teams in Twenty-Twenty matches are 150 with a standard deviation of 20 runs. The probability of a team scoring between 130 runs and 190 in a match is closest to
The average runs scored by cricket teams in Twenty-Twenty matches are 150 with a standard deviation of 20 runs. The probability of a team scoring between 130 runs and 190 in a match is closest to
a) 99.0%
b) 81.7%
c) 97.5%
The distance between 130 and 150 is 1 SD. We known the 1SD on both sides of means imply 68.4% probability. Since 130 to 150 implies only one side of the curve take half of it i.e 34.2%. Now on the other side distance between 150 and 190 is 2 SD. We known the 2 SD on bot sides of the curve implies 95%, since 150 to 190 is half of 1t the probability is 47.5%. So probability from 130 to 190 will be given by 34.2+47.5 = 81.7%
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