UNIVERSITY OF DAR ES SALAAM

BUSINESS SCHOOL
Department of Finance

COURSE FN307: Treasury Management

SEMINAR QUESTIONS SET IV

DOMESTIC & INTERNATIONAL CAPITAL MARKETS
1. Briefly define each of the major types of international bond market instruments, noting their
distinguishing characteristics.
2. What key factors are driving growths of the international capital market?
3. Describe the differences between foreign bonds and Euro Bonds. Also discuss why
Eurobonds make up the lion’s share of the international bond Market.
4. You’re an investment banker advising a Eurobank about a new international bond offering it
is considering. The proceeds are to be used to fund Eurodollar loans to bank clients. Wht typr
of bond instrument would you recommend that the bank consider issuing? Why?
5. Your firm has just issued five-year floating-rate indexed to six-month U.S. dollar LIBOR
plus 0.25%. What is the amount of the first coupon payment your firm will pay per U.S.
$1,000 of face value, if six-month LIBOR is currently 7.2%?
6. A five year, 4% Euroyen bond sells at par. A comparable risk five year, 5.5% yen/dollar dual
currency bond pays $833.33 at maturity per ¥110,000. What is the implied ¥/$ exchange rate
at maturity.
7. Consider 8.5% Swiss franc/U.S dollar dual-currency bonds that pay $666.67 at maturity per
SF1,000 of par value. What is the implicit SF/$ exchange rate at maturity? Will the investor
be better or worse off at maturity if the actual SF/$ exchange rate is SF1.35/$1.00?
8. Assume a yield to maturity of 8%. Compute the duration for the following bonds each 100
Euro par value. Compute duration.
a. 10 years, zero coupon;
b. 10 years, 8 percent;
c. 10 years, 12 percent coupon.
9. In problem 8 assume that yields change from 8 to 9 %. Work out the exact change in price
and compare it with the change in price predicted by duration. Explain the difference.
 Assume 100 Euro par values.
10. A firm has decided immediately to refund existing callable bond issue. Under what
circumstances is there an immediate benefit to refunding? What does that benefit depend
upon?
11. With reference to 2015 BOT guidelines for participation in primary and secondary markets
for Treasury Bonds discuss the Tanzania Domestic Treasury Bonds market. In your
discussion include; Advantages in investing in treasury bonds, Market- Set up and
participation, Auction and tendering procedures, Settlements, and Trading of treasury bonds
in secondary market.
12. A firm has a perpetual callable bond outstanding with a par value of 100 Euro and an annual
coupon of 14 Euro. The firm can refund this with a new non-callable perpetual bond having
an 8 percent coupon. The call price on the old bond issue is 114 Euro. Flotation costs for a
new issue are 2 percent of par value. What is the myopic benefit of refunding?
13. What is the theoretical value of a right? And why might it be different from the actual value
of the right?
14. Compare the right issue with the private placement
15. The equity stock of Karnataka is selling for Tzs 1200 per share. The company is planning to
issue right shares at Tzs 800 each in the ration of 1:2 this means that two rights will be
required to subscribe to one share. Calculate;
a. The theoretical value per share of the ex-right stock
b. The theoretical value of each right
16. The equity stock of Gujarat Tractors Company is selling for Tzs 220 per share. The company
is planning to issue right shares at Tzs 150 each. Four rights would be required to subscribe
to one share. Calculate;
a. Theoretical value per share of the cum-right stock
b. The theoretical value per share of the ex-right stock
c. Theoretical value of each right.
17. The equity stock of Narmada Foods is selling for Tzs 180 per share. The form is planning to
issue right shares in the ratio of one right share for every existing five shares.
a. What is the theoretical value of a right if subscription price is Tzs 150
b. What is the ex-right value per share if the subscription price is Tzs 160
 c. What is the theoretical value per share when the stock goes ex-right, if the
subscription price is Tzs 180.
18. Company XYZ has 30 million shares of common stock outstanding. It wishes to issue
another 1,500,000 shares. The current market price per share is $25 and the rights offering
subscription price is $20 per share.
a. How many rights will current stockholders receive?
b. How many rights are needed to buy one additional share?
19. You are a treasury manager of GonzalecEletrick Company and you want to know the value
of James Consol Company stock for acquisition purpose. James Consol Company currently
pays a dividend of $ 1.6 per share on its common stock. The company expects to increase
dividend at a 20 per cent annual rate for the first four years and at 13 per cent for the next
four years and then grow the dividend at 7 per cent rate thereafter. This phased growth
pattern is in keeping with expected life cycle of earnings. You require a 16 per cent return on
investment in this stock. What value will you place on a share of this stock?
20. Define and discuss the Sharpe, Treynor, and Jensen measures of portfolio performance
evaluation, and the situations in which each measure is the most appropriate measure.
21. What is the problem with using the Sharpe measure for evaluation of an active portfolio
management strategy?
22. Discuss the M2 measure of performance by answering the following questions. Why is M2
better than the Sharpe measure? What measure of risk does M 2 use? How do you construct an
adjusted portfolio P* from a managed portfolio, P, to use in computing the M2 measure?
What is the formula for M2 ?
23. Kelli Blakely is a portfolio manager for the Miranda Fund (Miranda), a core large-cap equity
fund. The market proxy and benchmark for performance measurement purposes is the S&P
500. Although the Miranda portfolio generally mirrors the asset class and sector weightings
of the S&P, Blakely is allowed a significant amount of leeway in managing the fund. Her
portfolio holds only stocks found in the S&P 500 and cash. Blakely was able to produce
exceptional returns last year through her market-timing and security selection skills. At the
outset of the year, she became extremely concerned that the combination of a weak economy
and geopolitical uncertainties would negatively impact the market. Taking a bold step, she
changed her market allocation. For the entire year her asset class exposures averaged 50% in
stocks and 50% in cash. The S&P’s allocation between stocks and cash during the period was
a constant 93% and 7%, respectively. The risk-free rate of return was 2%.
One-Year Trailing Returns
Miranda Fund S&P 500
Return 10.4 % −20.9 %
Standard deviation 35.0 % 40 %
Beta 1.20 1.00
a. What are the Sharpe ratios for the Miranda Fund and the S&P 500? (Negative values
should be indicated by a minus sign. Do not round intermediate calculations. Round
your answers to 4decimal places.)
b. What is the M2 measure for Miranda? (Do not round intermediate calculations.
Round your answer to 2 decimal places.)
c. What is the Treynor measure for the Miranda Fund and the S&P 500? (Negative
values should be indicated by a minus sign. Do not round intermediate calculations.
Round your answers to 4decimal places.)
d. What is the Jensen measure for the Miranda Fund? (Do not round intermediate
calculations. Round your answers to 4 decimal places.)