Chapter 4

Question 1

Theoretical market value of a right calculation

Answer 1

Change and share price

divided by

number of rights per share

Question 2

Unsystematic business risk

Answer 2

Variability in PBT, due to factor specific to a company.

Examples include equipment, failure, labour strikes, product, faults, product approval,

Investor, exposure to these risks may be diversified away

Question 3

Systematic business risk

Answer 3

Variability in PBT due to macro economic factors, such as the state of the economy, FX moves, interest rate, moves, inflation. Cannot be eliminated by diversification

Impacted by business sector of the company and its level of operational gearing.

Beta measures accompanies exposure to systematic business risk.

Question 4

A warrant Bond

Answer 4

A type of corporate bond which is sold along with a warrant, which enables the holder to buy shares in the issuing corporation at a predetermined exercise price.

Usually comes with a lower coupon rate because there is a warrant attached

Question 5

Features of a revolving credit facility

Answer 5

The borrower may draw funds up to a maximum limit.

The facility enables the borrower to minimise interest payments

The lender is not able to withdraw the facility whenever it wants.

The borrower can repay the facility gradually not all at once

Question 6

Or you