Small Business Financial Decisions and Risk Assessment

The Financial Decisions of Small Business
Small Business Financial Decisions Small business owners face many challenges when starting a business. Many people have a great concept,
but few understand the difference between forms of money, capital, and risk taking. Responsible businesses do not just take risks without first
calculating those risks. In fact, even the types of debt acquired by a business owner are considered carefully before decisions are made and action
taken. It is these calculations and assessments that determine the difference between a successful and an unsuccessful business. Net present value,
or NPV, is a cash flow calculation used to determine the actual payoff of an investment in advance. The formula used to calculate the NPV is the
summation of the net cash flow at a specific time divided by the sum of one and the discount rate raised to the power of a specific time. The
purpose of the equation is to determine how many years it will take for a specific expenditure to pay itself off and how many years it will take to
gain a profit. The general rule is that a financial risk is not worth taking if it does not produce a profit within five years. The net present value can be
used whenever a new investment is being considered for a company. For instance, if I wanted to purchase a more efficient copy machine for my
publishing business or new equipment for my assembly line, I would first utilize this equation and determine whether the investment is worth the
money being spent. If not, then further
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Arundel : Options Case Essay
Arundel Partners – The Sequels Project
After evaluation of the proposed acquisition of the movie sequel rights, we recommend to offer movie studios as a per–movie price to purchase the
sequel rights for their entire portfolio of movies the studios are going to produce over the next year.
Arundel should make an offer to buy sequel rights as the average NPV (on a per film basis ) is $5.51 mn (this is the value calculated using real options
method).
Hence, we should pay a price below $5.51mn. As per informal inquiries made by us, the studios would be tempted to accept the price of $2mn or
more and would not even consider a price below $1mn.
We propose that we should negotiate for the price of $2mn. This would give us a profit of... Show more content on Helpwriting.net ...
The results are as below
Studio| Average value of sequel rights per film( in $mn)| MCA UNIVERSAL| 12.3| PARAMOUNT PICTURES| 5.12| SONY PICTURES
ENTERTAINMENT| 4.89| TWENTIETH CENTURY FOX| 3.33| WARNER BROTHERS| 12.17| THE WALT DISNEY COMPANY| 17.68| All
Studios| 8.61|
Drawbacks and improvements of the DCF analysis method
DCF models underestimate the value of investments where there are embedded options to follow up with a second investment if the first one does well
(follow–on option)
1. Discount rate: The analysis assumes that the discount rate is the same for the complete throughput time of the project. This can be countered by
using different discount rates for different years, in case required.
2. Static model: Once the decision to go for the project has been made, possible future changes are not taken into account anymore. It does not account
for future decisions (such as hold or abandon a part of the project) based on better information or change in scenario. The NPV of the project should be
split in multiple projects whereby the decision is postponed until more information is known about a particular part of the project

Valuation of Sequel rights using Real Options model
Reason to use options model
The valuation of sequel rights involves contingency. This makes options model a better tool for this analysis since it is dynamic. Using

Risk Management at Wellfleet Bank: All That Glitters Is...
31. The _______ is the party that lends the funds in a commercial bill transaction. A: acceptor B: discounter C: drawer D: endorser B 32. In relation
to a commercial bill, the acceptance fee is: A: the discounter's fee for taking on the risks associated with discounting the bill B: the fee for drawing
up the bill C: the fee for taking the liability for paying the holder at maturity D: the drawer's fee for taking on the risks associated with drawing the
bill. C 33. When a party endorses a bank bill, it: A: repays the face value of the bill to the holder at maturity B: creates a liability for payment of the
bill C: provides the funds to the seller D: provides the funds to the discounter of the bill. B 34. A company... Show more content on Helpwriting.net ...
A 48. Under the expectations theory, if market participants expect future short–term rates to be higher than current short–term rates, the yield curve
will: A: be upward sloping B: be downward sloping C: be flat D: slope upward or downward or be flat, depending on risk and liquidity considerations.
A 49. If the yield curve is observed to be flat, then according to the liquidity premium theory, this in–dicates that the market is predicting: A: a small
rise in short–term rates in the near future and a small decline further out in the fu–ture B: constant short–term interest rates in the near future, and
further out in the future C: a small decline in short–term interest rates in the near future, continuing to decline slowly further out in the future D:
constant short–term interest rates in the near future and a small decline further out in the future. A 50. Which of the following statements about
segmented markets theory is correct? A: It assumes that lenders always lend for short periods. B: It assumes that borrowers have particular periods
for which they want to borrow. C: It gives a good explanation of why yield curves usually slope upward. D: It assumes that all bonds are perfect
substitutes for each other. B 51. Most of the foreign exchange transactions are conducted: A: by governments B: by tourists C: in the over–the–counter
market D: on the Australian Stock Exchange. C 52. If

The Hedge Fund Of Hedge Funds
Hedge funds are generally described as being private investment vehicles for wealthy, private and secluded investors, prearranged with limited
partnership. Partners of most hedge funds dedicate their personal wealth into the fund to ensure personal interest and dedication to the fund. This hedge
fund structure continues to be a dominant organizational setup in the financial industry. Albert Wislow Jones is known as the father of hedge funds,
creating the first one in 1949 that used what is known as short–long equity strategies and leverage to thrive in the economic world. He initially raised
$100,000 for the fund and $40,000 came out of his own pocket. By short selling other stocks, he originated this idea of minimizing risk. He changed ...
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Robertson's strategy was to place high bets on the most promising stocks and short sell what he thought as the worst possible stocks to invest in.
Unfortunately, the ratio between the yen and USD began to strengthen and Tiger Management was struggling, losing investors quickly. At the end of
the reign of Tiger Management, it was down to only $8 billion in management. After Tiger had been shut down, all of the traders Robertson had
trained went to major hedge funds. Robertson helped start the career of these traders, known as "Tiger Cubs", by providing early investment money to
40 of the world's biggest hedge funds today.
However, there is a more important hedge fund that almost caused the entire financial system to fail. Before there was Long Term Capital Management,
there was Salomon Brothers. Salomon Brothers developed the first mortgage–backed security. It wasn't until Paul Mozer, a trader at Salomon Brothers
submitted illegal bids for treasury securities by attempting to corner the market by purchasing more than the 35% allowed per individual transaction.
Paul Mozer's supervisor at the time was John Meriwether, who knew what he had done but let he stay in the firm anyway. Within just the next two
years, the firm attempted to corner the market the same way again. This time the Securities and Exchange Commission noticed, fining the firm $290
million and Mozer was finally

William Edwards Deming 's Life And Accomplishments
Introduction:
On October 14, 1900, William Edwards Deming was born in Sioux City, Iowa. He was the son of a farmer. In 1907 his family moved to Wyoming,
to farm land that was part of a government program, but was disappointed because the land was useless for his father's intentions: farming. His family
was very poor. Rarely was there money for heat or food. (Deming: Biography", 2000).
Deming's parents believed in being educated. He earned a Bachelor's Degree in electrical engineering from the University of Wyoming. He received his
Master's Degree at the University of Colorado. He received his Ph.D. in mathematics and physics from Yale. ("Deming: Biography", 2000). William
Edwards Deming's became successful in the United States, ... Show more content on Helpwriting.net ...
The success or failure of a company is the obligation of the entire organization as a whole. (Deming, 2004) In his book, Out of the Crisis, he presents
14 key principles for management to follow to improve the success of any business or any organization. His principles are below: (Deming, 1987)
1.Create constancy of purpose toward improvement of product and service. Always aiming to remain competitive, stay in business and provide jobs.
Strive towards being Excellent.
2.Adopt the new philosophy. "We are in a New Economic age". Change is good. In order for business to grow and be successful you have to change
with the times.
3.Cease dependence on inspection to achieve quality. If you produce a quality product initially the need for inspection on a mass basis becomes
unnecessary.
4.End the practice of awarding business on the basis of price tag. Build a long–term relationship of loyalty and trust with your supplier by using a
single supplier.
5.Always strive to decrease costs, by constantly improving the production and service system.
6.Establish training on the job.
7.Supervisors should help people, gadgets and machines to do a better job. Leadership is mandatory.
8.So that everyone works effectively for the company, drive out fear. Employees should want to try to do better. Failure is okay as long as something
is learned and gained from the failure.
9.Everyone and every department must work as a team.
10.Substitute

Capm vs. Apt: an Empirical Analysis
Yurop Shrestha Economics Thesis CAPM vs. APT: An Empirical Analysis Introduction The Capital Asset Pricing Model (CAPM), was first
developed by William Sharpe (1964), and later extended and clarified by John Lintner (1965) and Fischer Black (1972). Four decades after the birth
of this model, CAPM is still accepted as an appropriate technique for evaluating financial assets and retains an important place in both academic
scholars and finance practitioners. It is used to estimate cost of capital for firms, evaluating the performance of managed portfolios and also to
determine asset prices. Since the inception of this model there have been numerous researches and empirical testing to assess the strength and the
validity of the model.... Show more content on Helpwriting.net ...
The three most commonly used techniques are the "market model" (This is the most common one. I will be using this for my testing),
Scholes–Williams, and Dimson estimators. There are numerous advantages/benefits as well as some flaws in all the beta estimating techniques.
Examining that fall outside the field of this paper but the limitation section looks at the problems of the different techniques very briefly. In order
to compare the two models, staying consistent with the estimation techniques will be sufficient regardless of their flaws or biases. ARBITRAGE
PRICING THEORY The APT is the alternative model for asset pricing first developed by Ross (1976). This is a very appropriate model as it
agrees perfectly with what appears to be the intuition behind the CAPM. It is based on a linear return generating process as a first principle. Also it
is more sophisticated that the CAPM because it takes into account more systematic factors that might be relevant. It examines other macroeconomic
variables besides the market risk, making this model more sophisticated. It captures other factors that might have been ignored by the CAPM.
Formally the APT can be stated as follows. rj=Erj+bj1F1+ bj2F2+...+bjnFn+Пµj (3) Where, E(rj) is the jth asset's expected return, Fk is a systematic
factor (assumed to have mean zero), bjk is the sensitivity of the jth asset to factor k, also called factor loading, and Оµj is the

Weaknesses Of The Black Scholes Model
1. Introduction
In 1973, Fischer Black, Myron Scholes and Robert Merton derived the Black–Scholes model of modelling derivatives prices for European stock
options (Black & Scholes, 1973) and (Merton, 1973). This model has great importance on how traders determine the price and ways to hedge
derivatives since the 1970's (Hull, 2012), and led to other derivative instruments that have similar characteristics to option. Fundamentally, the
Black–Scholes model make sure of a simple formula to determine the price of an option contract using the underlying asset's price and its volatility, the
strike price and the market risk–free interest rate (Merton, 1973).
An option is a contract to buy or sell a specific financial product which the value is derived ... Show more content on Helpwriting.net ...
Nonetheless, Black–Scholes model remains popularly used for estimating the price of European style options. In fact, the Black–Scholes theory has
been used as a standard in the financial world (Ray, 2012). The weakness of the Black–Scholes model will be evaluated in later sections together with
solutions to tackle some of these limitations.
3. Strengths
The Black–Scholes model is widely used due to the following strengths:
1.The formula is considerably easy to calculate. The call option price subjects to only five parameters which are deducible or measureable. It uses
simple mathematical terms and option prices can be calculated within a short period of time.
2.It gives a very good approximation despite not perfectly correct due to the non–constant volatility. The model helps to give a first approximation in
establishing hedges in the correct ratios to minimise risk. In addition, the non–constant variables, which are reflected as the Greeks, could be hedged to
mitigate the risk associated with these parameters.
3.It provides a fundamental framework for future research to extend or refine it. Many literatures have be subsequently produced to evaluate the claims
of the

Bear Sterns Rise and Fall
The rise and fall of Bear Stearns
Introduction
Bear Stearns, the fifth largest investment bank in US, was established as an equity–trading house in 1923 by Joseph Bear, Robert Stearns, and Harold
Mayer. Its headquarters was located in New York City with offices in the major US cities, South America, Europe, and Asia, employing more than
13,500 people around the world. The firm survived every major crisis like the Great Depression, World War II, the 1987 market crash, and the 9/11
terrorists attack and never had a losing quarter in its history until December 2007, when Bear Stearns announced the first loss for about $854 million.
1. Failure Analysis:
1.1. Major factors that contributed to Bear Stearns failure
After the 9/11 ... Show more content on Helpwriting.net ...
The result was a private bailout by the major financial firms and supervised by the Federal Reserve. Bankers Trust, Barclays, Chase, Credit Suisse First
Boston, Deutsche Bank, Goldman Sachs, Merrill Lynch, JP Morgan, Morgan Stanley, Salomon Smith Barney, and UBS agreed to contribute with $ 300
million each one, while SociГ©tГ© GГ©nГ©rale invested $125 million and Lehman Brothers and Paribas did the same thing with $100 million.
The only bank that refused the join the syndicate was Bear Stearns. In the Bear Stearns case, the sudden collapse of the firm and the impossibility to
calculate the risk of taking Bear's mortgage holdings forced the Federal Reserve to be involved actively into the bailout instead of the "advisory" role it
took in the LTCM case 10 years earlier.
1.4 What could Bear Stearns have done differently to avoid this fate?
In the early 2000's, after the Federal Reserve dropped the interest rate and raised the money supply trying to control the crisis produced by 9/11
terrorist attacks, the firm's directors should have been more disciplined with the financial strategies, especially the ones related with hedge funds who
made poor quality investments. Furthermore, the failure to evaluate the risk, to diversify the portfolio, and to control the use of high leveraging was
driven by the need to justify the enormous

Berkshire Hathaway Phenomenon In the Context of Modern...
Berkshire Hathaway
Phenomenon
In the Context of Modern
Finance Theory
Septtember
2013
Berkshire Hathaway Phenomenon
In the Context of Modern Finance Theory
Introduction
Over the 46 years ending December 2012, Warren Buffett (Berkshire Hathaway) has achieved a compound, after–tax, rate of return in excess of 20%
p.a. Such consistent, long term, out performance might be viewed as incompatible with modern finance theory.
This essay discusses the Berkshire Hathaway phenomenon in the context of modern finance theory. Part 1 Modern Portfolio Theory
Berkshire Hathaway's investing strategies mainly differ with modern portfolio theory on two aspects. The first one is the attitude towards the
undesirable thing in ... Show more content on Helpwriting.net ...
Having compared the differences, it is still worth noting that Markowitz did not rule out fundamental analysis in portfolio selection process, as is said
in his foregoing paper,(Markowitz, 1952)"the process of selecting a portfolio may be divided into two stages.
The first stage starts with observation and experience and ends with beliefs about the future performances of available securities. The second stage
starts with relevant beliefs about future performances and ends with the choice of portfolio. This paper is concerned with the second stage".
Part 2 Efficient Market Hypothesis
The strong form of efficient market hypothesis states that all information, no matter public or private, instantaneously affects current stock price.
Semi–strong form is only concerned with public information, while the weak form suggests that current stock price reflects information in the previous
prices. In short, they simply imply that in the long run, no one should be able to beat the market in terms of investment return.

As is said in Fama's paper in 1970, (Eugene F, 1970)"the evidence in support of the efficient markets model is extensive, and (somewhat uniquely in
economics) contradictory evidence is sparse". However, Warren Buffet has always criticised efficient market hypothesis as much as he could. The major

Against the Gods the Remarkable Story of Risk by Peter L....
AGAINST THE GODS The Remarkable Story of Risk By Peter L. Bernstein I have to admit I was pleasantly surprised by Against the Gods. I
expected this book to be a typical dry book on a given financial subject, detailing use, application, and theory. I completely took for granted the fact
that math, particularly risk, has history. The author did a fantastic job of painting a picture and explaining how, why and when concepts we use today
came into being. While reading this book I became excited about risk and statistical analysis. The author is Peter L. Bernstein graduate of Harvard,
economist, educator, and historian. He lived from January 1919 to June 2009. Bernstein is best remembered for his contributions in investment... Show
more content on Helpwriting.net ...
It was a very profound and eye opening moment for me to see how the author tied communism to the deliberate exclusion of risk. Any manipulation
or attempt to hide risk changes the outcome and outlook of a situation. This was evidenced in the Soviet Union when their government tried to
exercise control by pushing the concept of risk out of consideration. The end result was a complete stifling of social and economic progress. I
personally compare this scenario to what Bernstein said earlier in the book about Greek society. Although the Greeks were great philosophers and
were on the cusp of discovering risk, no great inventions or discoveries in math or science happened in their time. Another thing I liked about the
book was in certain areas the discussion tied back to what I am currently working with on our StockTrak assignment specifically, the topes of options
and dividends. Bernstein told the story of how in 1973 Fischer Black and Myron Scholes created an options pricing model and tried to have their
work published. Although their work wasn't accepted because neither Black nor Scholes had advanced degrees, their work went on to become very
instrumental in options pricing and liabilities. With relation to dividends Bernstein explained how both investors and corporations would make more
money if instead of paying dividends corporations used that money to repurchase outstanding shares of stock. In several areas of the book Bernstein

Emi Group Case Study
While conducting the analysis of EMI group's dividend policy, one factor that stood out to us was the clientele effect. The clientele effect shows us who
holds most of our outstanding shares. High tax–bracket individuals would prefer zero–to–low dividend payout to save on taxes. Low tax–bracket
individuals would prefer a low–to–medium dividend payout, which gives them additional income while helping them save on taxes. An investing
corporation would prefer a higher dividend payout because if they own a significant amount of shares, say 1 million, the income stream from that
dividend would provide the company with more monetary resources while benefitting from tax exemptions. So before setting a dividend policy for EMI
group, we must first ... Show more content on Helpwriting.net ...
So, with net income projected to increase in the near future through restructuring, EMI will be able to service its debt obligations while satisfying its
shareholders.
EMI GROUP PLC
Teaching Note
Synopsis
This case examines the April 2007 decision of British music company EMI to suspend its annual dividend as the company struggled to respond to the
effect of digital audio distribution on its core business. The EMI case is intended to serve as an engaging introduction to corporate financial policy and
themes in managing the right side of the balance sheet. The case contrasts EMI's storied success with artists such as the Beatles, the Beach Boys, Pink
Floyd, and Norah Jones with its recent inability to succeed in financial markets. In light of takeover threats and restructuring costs, EMI's CFO Martin
Stewart must recommend EMI's dividend policy.
Objectives
The case serves to accomplish the following teaching objectives:
Introduce the topics of financial policy, such as dividend policy and debt policy.
Motivate the tension between investment policy and financial policy with respect to the sources and uses of cash.

Prompt the Modigliani–Miller intuition of financial policy irrelevance and homemade

Dimensional Fund Advisors, 2002
Investments Analysis and Management
Group 5: Dimensional Fund Advisors, 2002
DFA Overview
Dimensional Fund Advisors (DFA) is an investment firm founded in 1981 by David G. Booth and Rex Sinquefield, both graduates of the University of
Chicago Graduate School of Business.
The firm has three Nobel Laureates sitting on its board: namely Myron Scholes, Robert C. Merton, and the late Merton Miller. Other directors include
leading economists such as Eugene Fama and Kenneth French; they jointly created famous "Fama–French Three–Factor Model".
DFA has more than $230.9 billion of asset under management (AUM), as of 30 June 2011, rising from slightly over $35 billion in 2002. Its mutual
funds are not offered to individual investors, but ... Show more content on Helpwriting.net ...
Therefore this is a more accurate formula to find the required rate of return on equity.
[pic]
DFA's Passive Investment Approach
DFA's passive investment approach means that it is able to add value by tapping on some of the world's leading economists to bring their latest
academic research into practice. This approach is not for every investor as there are both sides to this strategy:
Pros:
Intellectual Capital – Access to the world's top leading economists, many of them Nobel laureates, by reaping the benefits of their economic theories
Flexibility of enhanced index – DFA's index funds are custom built and are not standard indexes such as the S&P500, Russell 2000, etc. While
standard index products are forced to adjust its portfolio based on its index composition, DFA can avoid paying a premium on astock by taking their
time to buy and sell a stock. Extract discount from purchasing blocks of stock – As only one of few funds which purchase large blocks of stocks, DFA
was able to extract a discount as sellers did not want to release such large blocks on the open market for fear of jeopardizing the stock price. Higher
investment returns – DFA's strategy of purchase discounts with avoidance of adverse selection enabled it to manage a small–stock portfolio which

Energy In Cologeria Essay
Colombian energy market is one of the core pillars of countryВґs development and its contribution to economic growth, influence the private
investment and to employment generation. The energy sector also contributes via royalties, taxes and dividends to fund a significant portion of the
national budget, which is devoted to social development. Colombia has traditionally been conspicuously dependent on hydroelectric power for its
electricity needs, with about two–thirds of installed producing capacity now being hydroelectric. Over the past era, Colombia's generating capacity has
increased by about 50%, reflecting the expanding demand for power in the country. In spite of the country's large potential in novelrenewable energy
technologies ... Show more content on Helpwriting.net ...
Weather derivatives are exotic derivatives and it's began trading Over – The – Counter (OTC) in 1997. As the market for these products grew, the
Chicago Mercantile Exchange (CME) announced the first exchange–traded weather futures contracts and corresponding options in 1999.
Taking this above perspective as a situation and present the original research outcomes, which aims is to construct the pricing of mathematical model
for temperature and find out, how the Colombian electricity markets are generating revenues due to the variations in the temperature fluctuation. The
Colombian climate is very warm and tropical on the coast ad in the north, with a rainy season from Mat to November. Though the temperature
fluctuates little throughout the year due to ColombiaВґs proximity to the equator, it does vary according to altitude. It is cooler in the upland areas and
cold in the mountains and in the cooer times of the nights can be freezing. Bogota is always springs – like, with cool days and crisp nights, though
when the sun is shining the days can get quite hot. The Amazon region generally stays warm and wet round. The achieve this objective of this paper
and it is necessary to Construct the Temperature Stochastic Model for Option Pricing based on data price the call and put options and how the
temperature fluctuating is affects investees in Colombian Electricity Markets. Thus, first part of

Capital Ideas: the Improbable Origins of Modern Wall...
Capital Ideas: The Improbable Origins of Modern Wall Street In his book, Capital Ideas: The Improbable Origins of Modern Wall Street, Peter L.
Bernstein examines the innovative financial work of various academics that helped shape modern Wall Street. Bernstein sets out to show that Wall
Street is in fact a fundamental and useful model to follow, rather than something to be feared. He points out that, "By combining the linkage between
risk and reward with the combative nature of the free market, these academics brought new insights into what Wall Street is all about and devised new
methods for investors to manage their capital." (2) These impressive scholars have incorporated scientific measurement to the art of finance, forever...
The important implication of this is that investors cannot consistently outperform the market, and if they do it is purely through luck. With
competition for information reaching new heights, professional managers face greater difficulties in attempting to outperform each other. If these
professionals are unable to consistently beat the market, there remains little hope for the average investor. Franco Modigliani and Merton Miller
examined how a corporation should select securities to sell in order to attain an optimal mix between debt and equity, the mirror image of what
Markowitz and Tobin had studied. Their findings led them to the conclusion that the market value of a firm is independent of its capital structure.
In an efficient market, the market will place the same value on firms with equal earnings power and equal risk. Their most innovative contribution
to the theory of finance was in elevating arbitrage to the level of a driving force. This Law of One Price states, "two assets with identical attributes
should sell for the same price... a profitable opportunity will arise to sell the asset where it is overpriced and to buy it back when it is underpriced.
The arbitrager will then lock in a sure profit, otherwise known as a free lunch." (171) In effect, arbitragers actually fix the imperfections in the market
by bidding away the

Emi Group Case Study
While conducting the analysis of EMI group's dividend policy, one factor that stood out to us was the clientele effect. The clientele effect shows us who
holds most of our outstanding shares. High tax–bracket individuals would prefer zero–to–low dividend payout to save on taxes. Low tax–bracket
individuals would prefer a low–to–medium dividend payout, which gives them additional income while helping them save on taxes. An investing
corporation would prefer a higher dividend payout because if they own a significant amount of shares, say 1 million, the income stream from that
dividend would provide the company with more monetary resources while benefitting from tax exemptions. So before setting a dividend policy for
EMI group, we must first ... Show more content on Helpwriting.net ...
EMI is attracting takeover interest from rivals, including the recent 260p offer from its U.S. rival, Warner Music. The company is currently involved in
a GBP125 million to GBP150 million (British pounds) restructuring effort that is taxing its financial resources.
Still, EMI has much to celebrate. It maintains one of the strongest catalogs of music and artists in the industry. EMI's music–publishing division is
stable and profitable, and its restructuring efforts appear to be gaining traction. EMI's digital sales are expanding aggressively and now represent 10%
of group revenue. The company also made an agreement with Apple to be the first major music company to offer its digital catalog using the new
format that maintains better sound quality and fewer rights' restrictions.
Given that backdrop, EMI's CFO Martin Stewart must recommend a dividend policy for EMI. Maintaining the 6p–per–share end–of–year annual
dividend would require GBP63 million of EMI's cash resources. Omitting the dividend may further disappoint investors and lead to greater softening of
EMI share values in the market.
2. It seems like this dividend decision is a big deal. Do shareholders generally prefer firms that pay dividends? Do you think EMI shareholders would
pay more if EMI promised a 6p dividend?
Students will generally claim that dividends are valuable to shareholders, and that this decision is a big deal for EMI. This discussion motivates an
introduction to the

Common stock repurchase and market signalling
Journal
of Financial
COMMON
Economics
9 (1981) 139–183.
STOCK REPURCHASES
North–Holland
Publishing
Company
AND MARKET SIGNALLING
An Empirical Study*
Theo VERMAELEN lJ/niversity of British Columbia, Vancouver, BC, Canada V6T 2 W5
Received January
1980, final version

received January
1981
This paper examines the pricing behavior of securities of firms which repurchase their own shares. The results are consistent with a market in which
investors price securities such that expected arbitrage profits are precluded. The results are also consistent with the hypothesis that firms offer premia
for their own shares mainly in order to signal positive information, and that the market uses the ... Show more content on Helpwriting.net ...
The direction of this signal is ambiguous.
It may be that the company perceives no profitable use for internally generated funds because of a lack of growth opportunities.
On the other hand, especially when a company offers to buy its shares at a substantial premium above the market price, management may believe that
their company is undervalued.
The tender offer then represents an attempt to pass on the value of this inside information to the current shareholders.
(2)
Dividend or personal
taxation hypothesis
Firms repurchase stock in order to let the shareholders benefit from the preferential tax treatment of repurchases relative to dividends; the tax advantage
may be weakened to a certain extent by the provisions of Section
302 of the Internal
Revenue Code, which treats redemption of stock as a capital gain only if one of the following cases applies:
(i) the redemption is 'substantially disproportionate' to the extent that after the repurchase, the percentage ownership of the shareholder must be less
than 80 7; of the percentage ownership he had, before the repurchase; by railroad companies in certain
(ii) the stock is issued reorganizations, defined by section 77(c) of the Bankruptcy
Act;
not equivalent' to paying a (iii) the distribution is 'essentially dividend. It is not

Strengths Of The Black-Scholes: Option Pricing Model
In 1973, Fischer Black and Myron Scholes developed the option pricing model called Black–Scholes option pricing model. The model explains how to
calculate the price of the option by using present value of the asset's price, volatility, strike price, time to maturity, and the risk free interest rate existed
in the market. Time to maturity is usually expressed as the number of days. The Black–Scholes option–pricing model can use for European call option,
which pays no dividends at zero–coupon risk–free interest rate before the option expire.
Majority of the market participants use the model for many reasons. Therefore, this paper will be carefully studies the model with detailed analysis of
the strength and weakness based on the assumption of ... Show more content on Helpwriting.net ...
The inputs are more objective than other option pricing models.
The main strength of the model is its simplicity as other variables are easy to get from market. Once the five variables are collected, the value of the
option can be calculated easily. Therefore, this give a benefit to market participants since they can compare market prices with different values based on
different inputs.
Although the model might seem as a complicated model for human calculation, the formula is simple in mathematical terms. Therefore, high–tech
computer programs are not need to compute and it can also save time.
One of advantages of the model is that investors can use the model to analyze market volatility of underlying assets. Results from the model are often
useful in practice and minimize risk even thought volatility is not constant. Then, investors will know whether the market value is rewarding
investment or not. Therefore, it acts as insurance and helps to reduce possible loss and expand profits. Black–Scholes model is not only useful for
estimating the value of the call option and hedging of option but also enlarge the approach to other derivative

Who Is Myron's Discus Thrower?
The Discus Thrower (Discobolus) was made by Myron, sculptor flourished in the late 5th century BCE. Myron is widely admired for his
representations of athletes in sculptures. The Discus Thrower shows an athlete in mid–action of throwing a discus. Myron's study of human anatomy
leads him to create a masterpiece that elegantly illustrates the muscles and the movements of the human anatomy.
The statue is designed on a single plane; which meant it is to be seen from one side only. The smooth texture of the bronze medium protrudes the
muscles lines and the features of the human body. Myron focused on motion and proportion in his sculpture. The athlete is paused in a posture when
he is about to make his forward swing. The athlete's body is well ... Show more content on Helpwriting.net ...
Similar to the Discus Thrower, the original work of The Thinker was also a bronze statue and both sculptures had many duplicates made. The statue is
sitting on a rough stone foundation. The man is in deep thought with his chin resting on his right fist. His right arm is relaxed on his left knee; a
uncommon posture that is quite uncomfortable. The man is looking down while his eyes are staring blankly at the space in front of his feet. The
Thinker is designed to be viewed from different angles. The statue depicts an excellent knowledge of the human anatomy. The bronze medium gives off
a glossy shine. The strokes on the sculpture are rough and rigid to show the muscles and tendons of the man. The clever usage of light highlights the
protruding muscles. Rodin uses asymmetrical balance to create a harmonious scene. The man is positioned to lean forward, however, the bold stone
that he is sitting on brings the balance back towards the center. The message the Discus Thrower portrays is about the attractiveness and the strength of
the human body. In AncientGreece, men that participated in the Olympic games were often nude to demonstrate the power and the perfect condition of
their bodies. The statue represents an idol, possibly for the ancient athletes, to look upon to as their ideal physical

What Are The Strengths And Weaknesses Of The Black-Scholes...
Introduction
In 1973, Fischer Black and Myron Scholes first published the Black–Scholes Model in the paper, "The Pricing of Options and Corporate Liabilities",
published in the Journal of Political Economy. From this model, the Black–Scholes option pricing Model (BSM) was deduced as a means to price
European options.
The simplicity of the use of the BSM allowed traders to effectively price and trade options and derivatives in markets all over the world. It is still
widely used today, although with some modifications, by market participants.
This paper seeks to evaluate the strengths and weaknesses of the Black–Scholes option pricing model.
Options
To better understand the strength and weaknesses of the BSM, an understanding of how options ... Show more content on Helpwriting.net ...
Therefore, the Black and Scholes (1973) methodology can be used for valuing convertible bonds."
However, the writer finds that the original BSM may require some modifications to value CBs. The reason behind this is based on some of the
unrealistic assumptions used by the BSM;
American Exercise Terms
The BSM offers a good framework to begin in valuing such an option. However, it must be noted that CBs often make use of options with American
terms, which the original BSM is unable to price. Han and Wu (2003) suggest a modification of the BSM to a standard forward diffusion equation over
an infinite domain.
Dividends
The original BSM assumes that the underlying security does not pay dividends, however in reality, many companies pay dividends on their stocks.
This requires for the BSM to be adjusted by subtracting the discounted value of the dividend from the stock price. However, overestimating or
underestimating this dividend could adversely affect the value of the option, leading to a possible misprice on the

Behavioral Finance
Behavioral Finance
Jay R. Ritter
Cordell Professor of Finance
University of Florida
P.O. Box 117168
Gainesville FL 32611–7168 http://bear.cba.ufl.edu/ritter jay.ritter@cba.ufl.edu
(352) 846–2837
Published, with minor modifications, in the
Pacific–Basin Finance Journal Vol. 11, No. 4, (September 2003) pp. 429–437.
Abstract
This article provides a brief introduction to behavioral finance. Behavioral finance encompasses research that drops the traditional assumptions of
expected utility maximization with rational investors in efficient markets. The two building blocks of behavioral finance are cognitive psychology
(how people think) and the limits to arbitrage (when markets will be inefficient).
The growth of behavioral ... Show more content on Helpwriting.net ...
This is especially true when one is dealing with a large market, such as the Japanese stock market in the late 1980s or the U.S. market for technology
stocks in the late 1990s. Arbitrageurs that attempted to short Japanese stocks in mid1987 and hedge by going long in U.S. stocks were right in the long
run, but they lost huge amounts of money in October 1987 when the U.S. market crashed by more than the Japanese market (because of Japanese
government intervention). If the arbitrageurs have limited funds, they would be forced to cover their positions just when the relative misvaluations
were greatest, resulting in additional buying pressure for Japanese stocks just when they were most overvalued!
2. Cognitive Biases
Cognitive psychologists have documented many patterns regarding how people behave.
Some of these patterns are as follows:
Heuristics
Heuristics, or rules of thumb, make decision–making easier. But they can sometimes lead to biases, especially when things change. These can lead to
suboptimal investment decisions.

When faced with N choices for how to invest retirement money, many people allocate using the
1/N rule. If there are three funds, one–third goes into each. If two are stock funds, two–thirds goes into equities. If one of the three

Book Review: When Genius Failed ; the Rise and Fall of...
Book Reviews of:
When Genius Failed; the rise and fall of Long–term Capital Management by Roger Lowenstein
&
Monkey Business; swinging through the Wall Street jungle By John Rolfe and Peter Troob
When Genius Failed: The Rise and fall of Long–Term Capital Management by Roger Lowenstein
The book tells the story of long–term capital management. It is the detailed history of how a group of elite investors who called themselves the 'LTCM'
(Long term capital management) contributed to the rise and fall of a hedge fund that brought the financial world to its knees when it lost $4 billion
trading exotic derivatives. This short biography is in a nutshell about risk management, this is a gripping book of our era that tells the financial ... Show
more content on Helpwriting.net ...
The failure of the LTCM'S is a true indicator of this. At first, the models performed beautifully and the fund was up over 30% each year for several
years. Between 1994 and 1998 the fund showed a promising return on investment of more than 40% per annum. However there was a down side
as well, its huge gamble with various forms of arbitrage which involved more than $1 trillion dollars went bad and in the following month, LTCM
lost a an alarming $1.9 million. This was not only an American financial disaster but the collapse also had a significant effect on international
monetary issues, putting the whole financial system at risk. The Federal Reserve bank of New York prompted by prompted concerns about Long
term capital management's numerous of derivative contracts, stepped in to organise a bail out with the major banks at risk. This was crucial in
order to avoid panic by banks and investors worldwide. Lowenstein explain in his book how LTCM became arrogant due to its success and
enventually leveraged $4 billion into $100 billion in assets. The $100 billion became collateral for $1.2 trillion in derivatives exposure. With this kind
of financial leverage even the smallest market move against you could wipe you out several time over, this is like a financial weapon of mass
destruction. However this risk did not crumble Long term capital management,
Long–term capital management committed all its mistakes in the typical risk

Analysis Of The Article ' Puzzlements Of A High School...
Society undoubtedly has a convincing and prevailing public literacy, as well as, numerous accepted symbols and ideas that legitimize the meaning of
being an American. As the author of "Puzzlements of a High School Watcher", Theodore R. Sizer explains how American media is the leading edge
of shared experience, which is pronounced in the generally shared language and symbols and how it is our reality. Sizer focuses on the fact that as a
nation, America has "a persuasive and powerful public literacy." He claims that it is the outcome of shows aired on television and very uniform
education processes. In his article, Sizer first sets the stage by describing the similarities among American high schools. He articulates that the
similarities in the system are so solid that a student moving schools, even across the nation, would be in the same academic situation as they left and
would only "lose few steps." Sizer continues by claiming that at least four properties can characterize American public literacy: it is centrally driven,
usually for merchandising purposes; it is commercial; it simplifies, synthesizes, unifies, and focuses; and lastly, literacy is sophisticated. By starting
his article with his observations of American public literacy, Sizer introduces and backs the issue. Sizer does not offer suggestions for change. Instead,
he begins to ask carefully chosen questions which provoke his audience to ponder their own answers. Aside from his own credibility of being

Definitions Of Robert Merton On The Options Pricing Theory
Introduction.
This paper will define the following 4 terms;
1.Adverse selection. [Reference: George Akerlof, Nobel Prize winner, 2001].
2.Prospect theory. [Reference: Kahneman, Nobel Prize winner, 2002].
3.Option pricing theory. [Reference: Robert C Merton, 1998].
4.Game theory. [Reference: John Nash, 1994].
The method of definition for each case is as follows;
1.Generally defines the term.
2.States main contribution of the named references above.
3.Briefly explains how the term may be beneficially used (or avoided).
4.Names an example or context in which the term is applied, with an illustration available in the appendices.
The paper concludes by highlighting the common characteristics of all the terms in relation to economic decision ... Show more content on
Helpwriting.net ...
Merton, R. Bloomberg. (2014). Robert Merton on the Options Pricing Model, Article as told to Peter Coy. [Online] Available from: http:/
/www.bloomberg.com/bw/articles/2014–12–04/black–scholes–robert–merton–on–the–options–pricing–model [Accessed: 11th August 2015].
Nobel, Media AB. Video Player. (2001) Nobel Media AB 2014. Prize Lecture by George A. Akerlof (42 minutes) [Online] Available from: http:/
/www.nobelprize.org/mediaplayer/index.php?id=501 [Accessed: 8th August 2015].
Nobel, Media AB. Video Player (2002). Prize Lecture by Daniel Kahneman (38 minutes) Nobel Media AB 2014 [Online] Available from: http:/
/www.nobelprize.org/mediaplayer/index.php?id=531 [Accessed: 10th August 2015].
Nobel, Media AB. (1994). Press Release. The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 1994. John C. Harsanyi, John
F. Nash Jr., Reinhard Selten. [Online] Available from: http://www.nobelprize.org/nobel_prizes/economic
–sciences/laureates/1994/press.html [Accessed:

15th August 2015].
Nobel, Media AB. (1994). The Prize in Economics 1994 – Presentation Speech. [Online] Available from: http://www.nobelprize.org/nobel_prizes
/economic–sciences/laureates/1994/press.html [Accessed: 15th August

Essay on Laura Martin: Real Options and the Cable Industry
Laura Martin: Real Options and the Cable Industry Introduction Laura Martin, an equity research analyst for cable stocks, believes that the best way
to value cable stocks is through creative methods such as real options and not through more traditional or typical valuation methods such as EBITDA
multiples, ROIC analysis and DCF analysis. In 1999 she presented at the Credit Suisse First Boston Broadband conference, where she wanted to
portray the message that real options is a superior valuation technique for cable stocks. She also wanted to have the opportunity to demonstrate her
knowledge of the drivers of value in the cable industry. The main reason why Laura Martin argues that real options is the correct method for valuing...
This implies that there is upside potential relative to the current price of $37.5; or that it is an undervalued stock. EBITDA multiple analysis was
another common metric used in the cable industry. However, this method relies on historical data to predict the future which is recognized as not an
effective way to value a stock. In spite of this, this methodology also yields a higher expected stock price. While performing a DCF analysis, a
thorough understanding of the business being analyzed is needed to determine the correct assumptions and items used for the analysis. For this
reason, Laura believed this was still a good method to value stocks in this industry. This analysis yields a higher company value than current price.
Real Options Valuation Analysis By using the Black Scholes model to value the European style call option some inputs are needed. First, the present
value of the stealth tier needs to be calculated. The cost of acquiring this project or strike price is another necessary input. In this case, this was defined
as the spending with the Stelth Tier, which is the opportunity cost of not lighting up the fiber immediately. Next, the volatility is calculated as well as
the life of the cable plant (time) and an interest rate. Clearly, this methodology includes the value of the "stealth tier" and yields a much higher value
than the other methodologies. Conclusion It is important to keep in mind when

Mathematical Theory And Numerical Methods
AMA 3021: Computational Finance
Business Project 2 Black–Scholes Solution by Finite Differences
Fynn McKay
(40099355)
Submission : 18th Dec 2015
School of Mathematics and Physics
Contents Executive Summary3 Introduction4 Question . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Background Information . . . . . . . . . . . . . . . . . 4
Overview of Solution . . . . . . . . . . . . . Applications . . . . . . . . . . . . . . . . . . Mathematical Theory and Numerical Methods Black–Scholes Model
MENTION BOUNDARY FROM OX Method of Finite Differencing Numerical Accuracy Algorithm and Implementation Results and Discussion
Tabulated Figures (Look at booklet, BIG) Discussion of Error Drawbacks of B–S Comparison to Published Results Conclusion Main Findings Further
Considerations References
2.Introduction
2.1.Question
Write a program (in MATLAB or C/C++) to calculate the putoption price p given data for the strike price X, risk–free interest rate r, volatility Пѓ and
time to expiry T.
Do this by writing the Black–Scholes Equation as a finite–difference equation and then integrating backwards in time from the expiry date to find the
put price, given the current spot price.
Use the following IBM put option figures to do so;
Current IBM spot price (As of November 28th 2015): S0=ВЈ138.50
Risk–free interest rate: r=1.0% per Annum
Put option expiry:

Dividend Theories and Their Arguments
International Bulletin of Business Administration ISSN: 1451–243X Issue 9 (2010) © EuroJournals, Inc. 2010 http://www.eurojournals.com
Dividend Policy: A Review of Theories and Empirical Evidence
Husam–Aldin Nizar Al–Malkawi Corresponding Author, Faculty of Business, ALHOSN University P.O. Box 38772– Abu Dhabi, UAE E–mail:
h.almalkawi@alhosnu.ae Michael Rafferty Senior Research Analyst, WRC, University of Sydney, Australia E–mail: m.rafferty@econ.usyd.edu.au
Rekha Pillai Faculty of Business, ALHOSN University, Abu Dhabi, UAE E–mail: r.pillai@alhosnu.ae Abstract The literature ondividend policy has
produced a large body of theoretical and empirical research, especially following the publication of the dividend irrelevance hypothesis ... Show more
content on Helpwriting.net ...
The enduring nature and extensive range of the debate about dividend policy has spawned a vast amount of literature that grows by the day. For
this reason, a full review of all debates is not feasible1. However, this paper endeavours to give justice to the importance of both the topic of
dividend policy as an area of financial economic research, and also to the literature that has been produced addressing that topic, by reviewing the
most important and influential studies in this area. It attempts to outline the main theories and explanations of dividend policies and to review the
main empirical studies on corporate dividend policy. The remaining of this paper is organized as follows. Section 2 gives a short background of
corporate dividend policy. Section 3 analyses the theories of dividend policy starting with the dividend irrelevance hypothesis of Miller and Modigliani,
and then the alternative hypotheses including bird–inthe–hand, tax–preference, clientele effects, signalling, and agency costs hypotheses. Section 4
summarises the paper.
2. Background of Corporate Dividend Policy2
The issue of corporate dividends has a long history and, as Frankfurter and Wood (1997) observed, is bound up with the development of the corporate
form itself. Corporate dividends date back at least to the early sixteenth century in Holland and Great Britain when the captains of sixteenth century
sailing ships started selling financial claims to investors, which

Mathematics : Mathematics And Real Economics
Mathematics and Real Economics
Although economics is about human interaction, economic theory is typically expressed using mathematics. Mathematics is an advanced language
tool used for providing clarity, precision and correctness for economic concepts. As humans interact, mathematics is a method employed to
communicate ideas clearly, provide evidence, and a method for expressing arguments. Although mathematics can be misleading, mathematics aspires to
establish true and valid statements while exploring assumptions. Troublesome scenarios develop when people try to avoid the use of mathematics. A
major achievement of economics is that competitive markets are optimal. The circumstances required for a free market to be optimal include a tax ...
The mean–variance theory focuses on implementing an efficient portfolio. The efficient portfolio is not necessarily the growth optimal portfolio. The
Black–Scholes option pricing model is completely compatible with the growth optimal theory. Fischer Black and Myron Scholes developed their option
pricing model under the assumptions that asset prices adjust to prevent arbitrage, that stock prices change continuously, and that stock returns follow a
log–normal distribution.
Quantifying Uncertainty and Risk When quantifying uncertainty and risk, random variables are utilized. Random variables have uncertain outcomes
with well–defined probabilities. Within mathematics, probability is a tool employed to help us describe uncertainty. Numerous phenomena can
happen; however, when utilizing mathematics, you know the probability of these events occurring. People's expectation of a positive event occurring
are what people looking forward to happening. The measure of uncertainty is standard deviation, which is the likelihood of the event not meeting
expectations. Covariance is a measure of how two variables perform with one another. Covariance picks up the idea of correlation. Covariance gives
you an idea if two variables are moving together or in an opposite direction. When variables are independent, knowing information about each separate
variable doesn't tell you anything about how the variables react with one another. If

Credit Derivatives in the Recent Global Financial Crisis
Credit Derivatives in the recent Global Financial Crisis 1.0 Introduction: In the recent times credit derivatives have become a very popular
financial security for investors. If we take a look at the chart given below we can see how the popularity of credit derivatives increased in the past
decade. The maximum volume of derivatives was traded during the years 2005 to 2007 of which 2006 was the highest at $2000bn. Then when the
financial crisis occurred at the end of 2007 the trading decreased rapidly the following two years to as low as $100bn in 2009. There has been claims
from financial critics that these credit derivative are the main factor that has lead to the almost collapse of the world financial markets and if corrective
measures... Show more content on Helpwriting.net ...
3.0 Why control measures are necessary? From the simple description of what happened during the financial crisis as mentioned above, it is clear that
the use or rather the overuse of credit derivatives was the major cause of the collapse of the financial market. The creatively designed derivatives
helped to hedge the risks off parties involved and eventually the party held accountable for the risk would get lost in all the complexity of each tranche.
In May 2010, the Financial Times quoted Warren Buffett with the following: "Derivatives are financial weapons of mass destruction, carrying dangers
that, while now latent, are potentially lethal to the financial system" (Lemer, 2010). This quote nicely reflects the fear of some market participants and
observers that credit derivatives may threaten the stability of the financial system. The transactions of credit derivatives are not required to be disclosed
by the market participants and this opaqueness in the system can easily lead to yet another collapse in the financial markets. Furthermore, there is no
common method of documentation and thus control measures are only self–regulatory (Ayadi & Behr, 2009). Sometimes government heavily
subsidizes the derivative markets making it easier for anyone to get credit derivatives cheaply. Almost one–third of OTC market trades require no
margin or collateral requirements at all. Financial innovation has a bad reputation at the moment, because exotic derivatives were one of

The Black And Scholes Model
Statement 2: "The Black and Scholes model is an ideal method to value Options"
The Black Scholes Merton (BSM) model is the best–known model for valuing options as it is the original of many option pricing models today (Haug
and Taleb, 2009; Le, 2015). Developed in 1973 by Fisher Black, Myron Scholes and Robert Merton, the BSM model is still widely used today as the
benchmark for many models and techniques that financial analysts use to analyse and determine the fair prices of given options (Jumarie, 2010). It is
widely used due to its simplicity however there are many criticisms regarding the assumptions made by the model (Bharath and Sumway, 2008; Haug
and Taleb, 2009; Le, 2015)
The BSM model is used to determine fair prices of European options only following a formula (as shown below) with the first basic assumption that the
underlying commodity, stock, or option pay zero dividend to its shareholders group being purchased during the option life (CFA, 2015).
In order to set the option pricing model, other basic assumptions have been used such as the market is efficient and frictionless which means that
people cannot predict with consistency the direction of stocks in the financial market; no tax or transaction costs occur and there are no legal
restrictions on trading in the options and in the underlying asset, or on short–selling the asset (Data and Mathews, 2004; Jiang, 2005). The BSM model
also assumes that the market is arbitrage free which indicates there

Managing Crude Oil Using Derivatives
MANAGING CRUDE OIL USING DERIVATIVES
The present price markers for crude oil are WTI, Brent and Dubai/Oman. The crude oil derivatives contracts are traded on the New York Mercantile
Exchange (NYMEX). The exchange acts as a regulatory body and as a financial trading forum for all the parties interested in buying the options.
Members of the exchange carry out the trades themselves, or they act on behalf of the firms they represent through an open outcry auction held in the
trading room or the floor. The procedure begins when a buyer calls an authorized commodity broker with an order to buy or sell futures or options
contract. This order is sent to the firm's agent who is on the trading floor. The prospects of more profits increases for the... Show more content on
Helpwriting.net ...
If the price of oil is tripled in a year then the company is able to purchase oil at the last years "locked in" price, which is lower than the current price,
which in turn helps the company to save a lot of money (Grabianowski, 2009). But, if the price of oil falls then the company ends up paying more and
loses money.
There are different types of financial instruments available for companies and investors to hedge against crude oil price volatility. These instruments
can be traded financially without the tangible physical delivery of crude oil and different instruments have different time periods. Some of the hedging
tools are Options, Futures and Swaps. But for this paper we will only focus on option contracts for management of risk in crude oil trading.
OPTIONS
The modern–day financial options market came into existence in 1973. It was known as the Chicago Board Options Exchange. During the same
year, Fisher Black and Myron Scholes invented a formula to calculate the price of an option using specific variables. This formula was later called the
Black Scholes Pricing Model and it had a huge impact on investors as they became confident about the idea of trading options. As of today there are
thousands of option instruments (stocks, bonds and currency) listed in the market and millions of them are traded every day.
Options offer extra flexibility to buyers for managing currency or price risk as they work like an insurance policy.Call option and Put option

World Wrestling Entertainment, Inc.
World Wrestling Entertainment, Inc.
Executive Summary
With over twenty years of experience in the sports entertainment business and the mergers of some of the leading companies in the wrestling industry,
Vince McMahon organized the World Wrestling Entertainment Inc., in the late 1970s. The organization consist of an integrated media and
entertainment company engaged in the development, production and marketing of television and pay–per–view programming, live events and the
licensing and sale of branded consumer products. There are other wrestling organizations in Japan and Mexico, the World Wrestling Entertainment and
National Wrestling Alliance are the only major one left in North America. (Edger WWE 10K, 2004). This paper will... Show more content on
Helpwriting.net ...
To evaluate the ratio, if the ratio is lower than the industry average, this suggests the firm may have liquidity problems. If the ratio is notability higher,
this may suggest the firm is not using its funds in an efficient manner. A firm that has a current ratio that is close to the industry average is performing
well. (Ameritrade, 2004).
Current ratio is calculated by dividing current assets by current liabilities. The current ratios for World Wrestling Entertainment, Inc. for 2002, and
2003 are, 4.3:1, and 4.2:1and 4.1:1. By using the general rule, the organization current ratios for all three years are well above 2.0. This means the
organization has adequate liquidity. The 2002 and 2003 ratios are higher than 2004 ratio.
Cost of Capital
Balance Sheet Analysis The balance sheet is one of four types of financial statements that are analyzed to determine the well being of the firm. The
balance sheet is also known as the Statement of Financial Position. The balance sheet provides the detailed information needed to determine the
financial condition of the firm on a specific date, which is usually December 31. The balance sheet depicts what the firm owns (assets), owes
(liabilities), and how much capital (shareholders' equity) it has. "The name, balance sheet, is derived from the fact that these accounts must always be
in balance. Assets

Test of Market Efficiency
1. Introduction A well organized financial system can help any country to have a success economic development. And the well organized financial
system also affects the market efficiency. Eugene Fama (1960) classifieds the market efficiency into three categories: 1> Weak Form of efficiency: if
current stock prices reflect all the information that from market transaction data, this capital market will be regard as weak efficiency. 2> Semi Strong
Form of efficiency: if the current stock prices not only reflect the all the information include historical prices but also all the information that are
publicly available about the companies being studied. Besides the historical information, the public information also includes the... Show more content
on Helpwriting.net ...
2> Collect the different period of daily share opening and close prices of these three companies, and the daily market's opening and close prices. In
my report, for Domino's pizza, I choose the share prices from 10th February to 2nd March. The share prices from 23rd February to 15th March are
collected for Carnival Corporation and Intercontinental Hotels Group's share performance are collected from the period from 20th January to 9th
February. And the whole market share prices in these three periods also are collected. 3> Calculate the daily Company returns, daily Market returns,
Expected Return, Actual Return, Abnormal Returns and finally the Cumulative Abnormal Return which is used to make a line chart to test whether a
market is efficiency or not. Company Return= close price–opening price/opening price*100 Market Return= close price–opening price/opening
price*100 Expected Return= = О± + ОІ * Market Return (О±: how much on average the share price changed when the market index was unchanged;
ОІ: how much extra the share price moved for each 1 percent change in the market index.) Actual Return=Company Return Abnormal Return (AR) =
Actual Return– Expected Return About the Cumulative Abnormal Return (CAR), the first day's CAR equals to first day's AR, the second day's CAR
equals to the first day's AR plus the second day's AR and the third day's CAR equals to the first day's AR plus the second day's AR and plus the

Literature Analysis Of The Black Scholes Pricing Model
Abstract2
Introduction:3
Literature Review:4
1.Options & its characteristics4
2.Black Scholes Pricing Model6
Assumptions6
I.Constant volatility6
II.No Dividends6
III. European exercise terms are used6
IV. Markets are efficient7
V.No commissions are charged7
VI. Interest rates remain constant and known7
VII. Returns are lognormal distributed7
VIII. Liquidity7
4.Inputs to the Black–Scholes Model9
I.The underlying price9
II.The exercise price9
III. Time to expiration9
IV. The risk–free rate9
V. Volatility9
5.Limitations of Black Scholes Model10
6. Macro–economic Variable Effect:12
Methodology:13
Analysis:14
Limitations:19
Recommendations:20
Conclusion:21

References:22
Abstract
A credit ... Show more content on Helpwriting.net ...
Black Scholes Pricing Model
In 1973, Myron Scholes and Fisher Black developed the framework on option pricing and presented the theory in their seminal paper. With reference to
both approach and application the Black Scholes Model is considered to be one of the most significant concepts in modern financial theory. For valuing
options the Black Sholes Model is viewed as a standard model.
Assumptions
To compute the value of a stock option the Black–Scholes Option Pricing Model is used. Both call and put option can be calculated with the help of the
model. For the accurate application of the Black Scholes Pricing Model it is necessary to be familiar with its assumptions. Black and Scholes
specified the following assumptions in their seminal paper (1973). (Ray, 2012)
I.Constant volatility
Volatility refers to the movement of the stock price whether upwards or downwards. The model assumes that the volatility does not change and is
known to market participants. This implies that the variance of the return remains constant over the life of the option.
II.No Dividends
The model assumes that the underlying asset (stock) does not pay any dividends during the option's life.
III.European exercise terms are

Hedge Funds Essay
Hedge Funds
Instructor: Dr. F. Beer
By: Vishal Pahuja| Angel Cardoz|
Contents Introduction by Vishal Pahuja3 History by Vishal Pahuja4 Types of Hedge Funds by Vishal Pahuja4 Key Characteristics of a Hedge Funds
by Vishal Pahuja5 Size and Market Statistics by Angel Cardoz5 What is the Cost? by Angel Cardoz6 Cost to manage6 Cost to Economy7 Risks and
Returns by Vishal Pahuja7 Hedge Fund Structure by Vishal Pahuja8 A Success Story by Vishal Pahuja9 Peer Evaluation9 Pay for Hedge Fund
Managers9 A Failure Story by Angel Cardoz10 Long–Term Capital Management10 The Rise10 The fall10 The future of hedge funds by Angel
Cardoz11 Regulation11 Markets11 Bibliography by Vishal... Show more content on Helpwriting.net ...
To be able to achieve that goal, hedge funds employ varied strategies. To understand hedge fund, let's try to understand one of the strategies
commonly seen, that is "selling short". Let's assume that we have two securities that are related to each other, that is, their price behaves similarly
to the market conditions. They move in together over time. Let's assume that at some point in time, they diverge for whatever reason. This
divergence is seen as an opportunity to minimize the risks (or may be greediness!) and make big profits irrespective of how the market is
performing. The hedge fund would buy security that is selling below its normal range, as it is expected to increase relative to A, and would sell
security A short. "Short selling (also known as shorting or going short) is the practice of selling assets, usually securities, that have been borrowed
from a third party (usually a broker) with the intention of buying identical assets back at a later date to return to the lender."
To understand it even better, let's put some numbers and try to phrase it so that anyone can understand the concept. Let's consider Beans and Rice,
since they are so closely related, we assume that their price always shows similar trends. Difference between their prices is always a dollar and beans
are always less than rice. For example if rice is 5$ a

MW PETROLEUM Essay
TITLE: MW Petroleum Corporation: A Valuation Approach on Real Assets
ABSTRACTOR SUMMARY
Valuation is the estimation of an asset's value, whether real or financial, based on variables perceived to be related to future investment returns, on
comparison with similar assets, or, when relevant, on estimates of immediate liquidation proceeds (Pinto, Henry, Robinson, Stowe; 2010).
Correct valuation of real assets can present challenges to financial analysts. Different models can be used to arrive at the closest estimate of value and
yet certain issues will always arise.
This case attempts to tackle two approaches in real asset valuation: Discounted Cash Flow (DCF) analysis and the issues surrounding such, as well as
the Black–Scholes ... Show more content on Helpwriting.net ...
Amoco is already at the mature stage, and its current strategy is aimed at divestment (major restructuring to better focus on its core businesses) – MW
properties no longer form part of such core businesses. Amoco is merely interested in selling MW for a profit, where as Apache sees it as an
opportunity for growth and geographic diversification, to add further stability to the company, and to increase its reserves. Furthermore, Apache's
revenues are highly dependent on natural gas (current portfolio has an oil–gas ratio of 20–80), and with the increased volatility in natural gas prices,
Apache would benefit from acquiring properties with a large concentration of non–gas assets.
2. Structure and execute a DCF valuation of all the MW reserves. How much are the reserves worth? Is your estimate more likely to be biased high or
low? What are the sources of bias?
At first, WACC and CAPM was attempted to be used as a source of cost of capital. However, for WACC, there is no available proportion of debt and
cost of debt for MW. For CAPM, no available data seems to support the acceptable

Benefits Of Using Cds Used For Hedging Purposes
Banks are classified as users or non–users of CDS based on a search of their annual reports for information about the use of CDS. To search the
reports, I have searched for key terms and expressions that indicate the use of CDS such as CDS, credit default swap, and credit default contract.
Appendix (C) shows the complete list of the banks classified as CDS user or CDS non–user, and their market capitalization.
The CDS users represent 50% of the sample and the other half are nonuser. The selected sample will be used to test two main aspects: 1) The effect of
the CEOs' risk–taking incentives on CDS use by distinguishing between CDS use for hedging purposes and CDS use for trading purposes; and 2)
How the CDS use impacts the firms' risk by ... Show more content on Helpwriting.net ...
In 2002 the European Union agreed that from January 2005 international accounting standards/international financial reporting standards (IASs/IFRSs)
would apply for the consolidated accounts of the EU listed companies (Barth, Landsman, and Lang, 2008). Starting from 2005, IAS/IFRS adoption has
been mandatory in all the member states of the European Union with the ultimate goal of increasing transparency in financial reporting. This adoption
of IAS/IFRS therefore represents an extraordinary event for empirical research because evidence shows that the mandatory adoption of IAS/IFRS in
Europe results in better quality of financial reporting. In fact, empirical studies provide some support to the notion that adopting IAS/IFRS improves
the quality of financial reporting and of public information (Palea, 2013).
3.1.4Data sources
In this thesis, secondary data is used to answer the two research questions. The data have been collected from two main sources: bank's annual reports
and Datastream. Following the approach of many prior empirical studies the data on CDS and derivative are hand–collected from banks' annual reports
(e.g., Allayannis and Ofek, 2001; Rajgopal and Shevlin, 2002; Supanvanij and Strauss, 2010).
Unlike US firms, compensation data for European companies are not readily available in

Strengths And Weaknesses Of The Black Scholes Model
Introduction.
The essay will examine the strengths and weaknesses of the Black–Scholes model by first briefly understanding its birth in an effort to look to the
intention on which the model is created to fulfil. This will then form the basis on which it will be assessed upon.
Then the essay will examine the model's growth of usage, describe how the model functions and what it is used for, essentially outlining the model's
strength. In so doing, the author will strive to highlight the benefits and changes the model brought into the financial markets and the people who uses it.
When evaluating the model's sustainability, the essay outlines the model's limits and applications under certain conditions. Here, the author highlights
the weaknesses of the model, both, within the model itself as a ... Show more content on Helpwriting.net ...
However, outside these conditions, and as in the cases where the volatility estimation is imprecise, the model would obtain a price that may differ from
its observed value.
Hence, the model merely deals with the pricing of the option but it is the trader that then has to determine its value.
Conclusion
The Black–Scholes model can be used extremely well in the manner in which it was set out to do. It is still used for many other variations. With newer
and faster technologies, better algorithms and cheaper transaction costs, the model may perform even better in its current deficiencies in high volume
calculations.
As with any mechanical tool, one has to remember that the model has no preferences and merely calculates the data it is presented with. The user of
the model would still have to evaluate that figure alongside market conditions. The financial markets are made up of the human valuation of the assets
and humans deal with more than just numbers.
In the final analysis, the Black–Scholes model is a tool that must be used to compliment the party using

Case Study: Application of Real Options to Energy Investments
Introduction
Energy investments have been evaluated using diverse methods. Santos et. al. (2014) argue that conventional approaches such as Net Present Value
(NPV) or Internal Rate of Return (IRR) do not consider relevant project characteristics like irreversibility, uncertainty and management flexibility. They
propose that the Real Options Approach (ROA) has an advantage over conventional methods. The aim of this essay is to apply real options to a
renewable energy investment (mini–hydro plant) using the binomial lattice tree developed by Cox, Ross and Rubinstein.
Economic evaluation of energy investments
Electricity generation projects are more or less irreversible because their huge capital outlay cannot be easily diversified; the ... Show more content on
Helpwriting.net ...
Despite this distinction, most principles of financial options are applied to real options. The table below depicts the relationship between these concepts.
Table 2: Financial and Real Options Source: Sanislo (2002)
There are various types of real options. For this essay the deferral option is used; a deferral option gives its holder the option to begin an investment
immediately or at a future date. The Black–Scholes formula for pricing options and the binomial lattice model are the basic financial models.
The Black–Scholes Model and Multiplicative Binomial Option Pricing Model
The Black–Scholes formula for valuing options was the first numeric formula for pricing European call options. Santos et. al., (2014) argue that Fisher
Black and Myron Scholes's formula is rooted in Modigliani and Miller's non–arbitrage proposition. The model holds the following assumptions: a) the
risk–free rate is known and constant over time; b) the asset pays no dividends; c) the option can only be exercised at its maturity date; d) there are
no transaction cost when buying or selling an asset or its derivate; e) it is possible to invest any fraction of assets or derivate to the risk free interest
rate; f) there are no penalties when selling short; g) the model is developed from the concept that the option asset price has a continuous stochastic
behaviour,

Evaluation of Various Numerical Methods for Option Pricing...
In finance, a derivative is a financial instrument whose value is derived from one or more underlying assets. An option is a contract which gives the
owner the right, but not the obligation, to buy or sell the asset at a specified strike price at the specified date. The derivative itself is just a contract
between two or more parties. Its value is determined by fluctuations in the value of the underlying asset. This price is chosen so that the value of the
contract to both sides is zero at the outset, which means that the price is fair, so neither party is taking advantage of the other. Hence, numerical
methods are needed for pricing options in cases where analytic solutions are either unavailable or not easily computable. The subject of ... Show more
content on Helpwriting.net ...
This method is widely used as it is able to handle a variety of conditions. Finite difference methods were first applied to option pricing by Eduardo
Schwartz in1977. In general, finite difference methods are used to price options by approximating the differential equation that describes how the
option price moves over time by a set of difference equations. This method arises since the option value can be modeled by partial differential
equations, such as the Black–Scholes PDE. This approach has the same level of complexity tree methods. The application of Monte Carlo method to
option pricing was by Phelim Boyle in 1977. In terms of theory, Monte Carlo valuation relies on risk neutral valuation. The technique is to generate
several thousand possible random price paths for the underlying asset and via simulation, and to calculate the average payoff of each path. This
approach is particularly useful in the valuation of options with complicated features, which would be difficult to value through straightforward
Black–Scholes style or tree model. ( reference [3] Valuation of Options)
Each of these methods has its own advantages and disadvantages. The comparison of accuracy and consistence are presented and suitable method for
each situation is discussed.
Then the report briefly goes through some exotic options and implements the numerical solutions with binomial tree method. These options, includes
American option which can be exercised any time before the

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