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Financial Market Essay

569 words - 3 pages

Financial Market Homework 1

For 09/30/2014

Azizi Nabil , Ferrary Alexandra , Seneclauze Pierre , Renaud Gigou

Review Question (5) :

5. List and explain the three financial factors that influence the value of a business.

The three factors that affect the value of a firm's stock price are cash flow, timing, and risk.

The Importance of Cash Flow: In business, cash is what pays the bills. It is also what the firm receives in exchange for its products and services. Cash is therefore of ultimate importance, and the expectation that the firm will generate cash in the future is one of the factors that gives the firm its value.(page 9-10)

The Effect of Timing on Cash Flows: Owners and potential investors look at when firms can expect to receive cash and when they can expect to pay out cash. All other factors being ...view middle of the document...

(page 9-10)

Problem (1-3);

3. a. The value of the firm would decrease because to receive cash flow we need more time due to the delay cash inflows .
b. The value of the firm would increase because we expect earning more cash flow .

c. We think that the value of the firm will decrease if the expected future cash flow don't change because there is a raise of riskiness of the firm .

ReviewQuestion Chapitre 2 question 3;

3. What are the characteristics of an efficient market?

« The term market efficiency refers to the ease, speed, and cost of trading securities. In an efficient market, securities can be treated easily, quickly, and at low cost. Markets lacking these qualities are considering inefficient ». For example, the stock market is an efficient market because it follows these characteristics.

Problem (2-7);

Treasury Yield Curb ;

Treasury security yields |   | Maturity |
  |   |   |   |   |
Three-month T-bills |   | 4.50% | 0.25 |
Six-month T-bills |   | 4.75% | 0.5 |
One-year T-notes |   | 5.00% | 1 |
Two-year T-notes |   | 5.25% | 2 |
Three-year T-notes |   | 5.50% | 3 |
Five-year T-notes |   | 5.75% | 5 |
Ten-year T-bonds |   | 6.00% | 10 |
Thirty-year T-bonds |   | 6.50% | 30 |

A) The Borrowers ;Borrowers seek a short term loan , because they want to search the most advantageous rate so , on the curve the lowest point is 3 months. However, if a firm borrows longterm and obtains the higher interest rate,it can be interesting because the interest rate will be locked in for life in this case for 30 years .

B) The Lender ; For the lender is the contrary , they seek a long term loan , because more the interest rate is higher , more they will make profit .But they can be interested by short term loan because the interest rate can grow up rapidly and so firm’s can make money more rapidly .

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