Question 1 :

· Explain how convertible bonds could be used to finance a company and discuss the main factors that should be evaluated when considering their use from a company and investor perspective.(200 words )

· Discuss and explain why debt finance is cheaper than equity finance for a UK plc (200words)

· Discuss the circumstances that might cause a company to over trade and identify the potential consequences for a company of overtrading. In addition, evaluate the actions that could be taken in order to address the problem of overtrading (500 words)

Question 2

· How the risk reduction effect of diversification (200words) .

· How to obtain a risk-free return (50 words )

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· Explain with the use of diagrams how the Capital Market Line (CML) is derived. Within your diagrams you should identify the efficiency frontier and market portfolio, and within your discussion explain the significance of both. (300 words )

· Discuss how the Capital Asset Pricing Model and the Security Market Line (SML) evolved from portfolio theory and explain how the approach is used to value shares (400 words )

Question 3

· The Principal Agent Problem occurs when one party (the agent) is allowed to make decisions on behalf of another party (the principal). Analyse and discuss the evidence suggesting the presence of an agency problem between managers and shareholders within a company and critically evaluate the effectiveness of possible remedies. (400)

a) In 2012, Apple shareholders engaged in a “revolt” against management, demanding that the company pay some of its cash reserves to shareholders in the form of dividends or stock buybacks. Apple management resisted, stating that they would prefer to save the cash reserves for future expansion and growth. The power of the shareholders carried the day, and over the next few years, Apple paid out 72% of their operating cash flow. (Misamore, B., 2018)

Within the concept of dividend policy relevance, critically discuss the idea that the payment of dividends can be viewed as one of the measures available for controlling agency behaviour. (400)