...Disclaimer This PDF is a section of the Unilever Annual Report & Accounts and Form 20-F 2003 provided to Unilever's shareholders. It does not contain sufficient information to allow a full understanding of the results of the Unilever Group and the state of affairs of Unilever N.V., Unilever PLC or the Unilever Group. For further information the Unilever Annual Report & Accounts and Form 20-F 2003 should be consulted. Certain sections of the Unilever Annual Report & Accounts and Form 20-F 2003 have been audited. Sections that have been audited are set out on pages 73 to 125, 131 to 147 and 149 to 150. The auditable part of the Directors' Remuneration report as set out on page 68 has also been audited. The maintenance and integrity of the Unilever website is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of these matters. Accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially placed on the website. Legislation in the United Kingdom and the Netherlands governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Disclaimer Except where you are a shareholder, this material is provided for information purposes only and is not, in particular, intended to confer any legal rights on you. The Annual Report & Accounts and Form 20-F does not constitute an invitation to invest in Unilever...
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...To explain the roll cost, every day roughly one twentieth of VXX holdings in the near month futures contracts are sold and replaced with the same amount of next month futures. Most of the time, the near month future is at a lower value than the next month because investors tend to expect hell to break loose in the future, not tomorrow. For example, today, July expiration future is $20.21 and August expiration future is $21.69 so there is a 7.3% premium on August. Since every day we pay more to replace the futures contracts with new futures contracts, we are paying this roll cost. Futures prices change wildly every day but imagine If the futures values did not change for an entire month, you would lose 7% of your investment. If you don't know anything about it, that's an excellent reason not to own it. "Invest in what you know" is pretty universal investment advice. I'll do the same, copy and paste to my MS Word and then try to comprehend. To think that I averaged a 3.78 GPA and actually two 4.0s in my micro/macro economy & Global Economy, and to find that I need more time to remember and understand alll these, it's depressing. My mental judgment tells me that you know what you are saying. Thank you. (That still I´m not) you don´t need to be a PhD in Economics (even as having one can help): you DO need a lot of PATIENCE, you need a discipline of reading everyday A LOT about global economic & political news (discarding the garbage from real-value information), you...
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...Grade Details - All Questions | 1. | Question : | (TCO C) Blease Inc. has a capital budget of $625,000, and it wants to maintain a target capital structure of 60 percent debt and 40 percent equity. The company forecasts a net income of $475,000. If it follows the residual dividend policy, what is its forecasted dividend payout ratio? (a) 40.61% (b) 42.75% (c) 45.00% (d) 47.37% (e) 49.74% | | | | Instructor Explanation: | Answer is: d Text: pp. 570-572 - Residual Dividends, Chapter 14 Capital budget $625,000 Equity ratio 40% Net income (NI) $475,000 Dividends paid = NI - (Equity ratio)(Capital budget) $225,000 Dividend payout ratio = Dividends paid/NI 47.37% | | | | Points Received: | 10 of 10 | | Comments: | | | | 2. | Question : | (TCO F) Chocolate Factory's convertible debentures were issued at their $1,000 par value in 2009. At any time prior to maturity on February 1, 2029, a debenture holder can exchange a bond for 25 shares of common stock. What is the conversion price, Pc? (a) $40.00 (b) $42.00 (c) $44.10 (d) $46.31 (e) $48.62 | | | | Instructor Explanation: | Answer is: a Chapter 19: pp. 770-774 Par value: $1,000.00 Conversion ratio: 25.00 Conversion price = Par value/Conversion ratio = $40.00 | | | | Points Received: | 10 of 10 | | Comments: | | | | 3. | Question : | (TCO B) Ang Enterprises has a levered beta of 1.10, its capital structure consists of 40 percent debt...
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...|15. |Binomial valuation You have an option to purchase all of the assets of the Overland Railroad for $2.5 billion. The option expires| | |in nine months. You estimate Overland's current (month 0) present value (PV) as $2.7 billion. Overland generates after-tax free | | |cash flow (FCF) of $50 million at the end of each quarter (i.e., at the end of each three-month period). If you exercise your | | |option at the start of the quarter, that quarter's cash flow is paid out to you. If you do not exercise, the cash flow goes to | | |Overland's current owners. | | |In each quarter, Overland's PV either increases by 10% or decreases by 9.09%. This PV includes the quarterly FCF of $50 million. | | |After the $50 million is paid out, PV drops by $50 million. Thus the binomial tree for the first quarter is (figures in | | |millions): | | |[pic] | | |The risk-free interest rate is 2% per quarter. | | |Build a binomial tree for Overland, with one up or down change for each three-month period (three steps...
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...An analysis of the results of For the year ended 2nd April 2006 Report devised and prepared by Duncan Williamson www.duncanwil.co.uk May, June and July 2006 3rd Edition Marks and Spencer Analysis Introduction This article concerns Marks and Spencer and came about following the publication of their annual financial results. There is nothing extraordinary about the results apart from two things! • • They were very big news in the business and ordinary press They have been prepared under International Financial Reporting Standards rather than under UK Financial Reporting Standards The second point took me a little by surprise for the simple reason that it didn’t seem to cause a fuss. I expected a few more explanations by accountants and analysts over the restatement of 2005’s results and the potential impact on 2005 and 2006 and beyond of the application of IFRS. Of course, M&S published comparative figures for the IFRS based results for the latest year and they restated the previous year as they should. However, I seem to be the only person who is worried or concerned or bothered in the slightest about the potential for smoke and mirrors lying behind some or all of what was revealed. Why am I worried? Well, M&S is still trying to work its way out of a fairly tough trading period and coming at the end of the transition to IFRS I wanted to hear what analysts thought about what I was worried about. This is the second edition of this article and the final section...
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...Unit 6 Assignment GB550: Financial Management Alberto Silveira Kaplan University Prof: Ana Machuca April 11, 2011 Chapter 13: Problem 13-5: How is it possible for an employee stock option to be valuable even if the firm's stock price fails to meet shareholders' expectations? Solution: Employees are given the option of buying stocks at a specified time at a specified price without investing any money. For example, if the price of stock is $10 today and the employee is given the option to buy 1000 shares at the price of $10 per share two years from now. If the stock price increases to $12 per share in two years, then the employee will gain $2,000 ($2 x 1000) from these stock options. Let’s say that the expected capital appreciation was 20%, the value of the stock would have increased to $14.4 per stock. Even though the stock price fell short of the expected value, it still created additional income of $2,000 for the employee. The options pay off if, at the time of option expiration, the stock price is higher than the option’s strike price, even if the company failed to meet shareholders’ expectations. Chapter 15: Problem 15-8: The Rivoli Company has no outstanding debt and its financial position is given with the following data: Assets (book=market) $3,000,000 EBIT $500,000 Cost of equity, rs 10% Stock price, P0 $15 Shares outstanding n0 200,000 Tax rate, T (federal plus...
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...Traditional VS Islamic Financial Derivatives To: Prof. Naser Abu Mustafa By: Mwaffaq Al Jayousi & Mohammad Al Shdooh Abstract This study focuses the light on defining financial derivatives and briefly describe their different types (Options, Forwards, Futures, Swaps, etc.). At the same time it tries to find if these financial derivatives exists in the Arab world, how they are implemented, and if we have an Islamic alternatives for them. Introduction There is a big debate in the Arab world regarding the usage of financial derivatives, Wither they are legal according to Islam or not, and If they are illegal in Islam; are there any Islamic alternatives to them. First we have to ask our self: Is there any need to use derivatives? And why they recently became so popular in the western countries? The need for financial derivatives emerges when people realize that there must be a way to reduce the risk associated with the trading of different kinds of goods. Risks such as price fluctuations and the uncertainty about the future market conditions. And since there are some people who are willing to bear this risk instead of us, this market took off and recently because of the communications revolution it flourished. Then why these financial derivatives did not reach the Arab world? The answer is simply because they hugely rely on speculations and anticipation; which are considered illegal according to Islam. But someone can ask: if it is illegal in Islam, then how come we...
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... . . . . . . . . . . . . . . . 27 4.9 Solutions to Selected Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 5 Random Walk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 5.8 Solutions to Selected Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 6 Interest-Rate-Dependent Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 6.9 Solutions to Selected Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 1 The Binomial No-Arbitrage Pricing Model 1.7 Solutions to Selected Exercises Exercise 1.2. Suppose in the situation of Example 1.1.1 that the option sells for 1.20 at time zero. Consider an agent who begins with wealth X0 = 0 and at time zero buys ∆0 shares of stock and Γ0 options....
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...FI516-Advanced Financial Management Spring 2011 Week 3 Assignment Chap 8-1 Exercise value = $30 (Current stock price) – $25 (strike price) = $5 Time value = $7 (Option price) – $5 (Exercise value) = $2 Chap 8-2 Time Value = Market price of option - Exercise value $5 = V - $22 V = $27. Exercise value = P0 - Strike price $22 = P0 - $15 P0 = $37. Chap 15-8 a. = D + S = 0 + ($15/share)(200,000 # share) = $3,000,000(value) WACC = wd rd(1-T) + wcers = 0 + (1.0)(0.10) = 10% WACC = wd rd(1-T) + wcers = (0.30)(.07)(1-0.40taxes) + (0.70)(.11) = 8.96%. b. Debt = wd V = 0.30($3,000,000) = $900,000 S = V – D = $900,000 P = [S + (D – D0)]/n0 = [$200,000 + ($900,000) – 0)]/200,000 = $5.50 c. X = (D – D0)/P = $200,000 / $5.50 = 36363.636 n = 200,000 – 36363.636 = 163636.364. Initial position EPS = NI/n0 = [(EBIT – Int.)(1-T)] / n0 = [($500,000 – 0)(1-0.40)] / 200,000 = $1.50. Using financial leverage EPS = [($500,000 – 0.07($200,000) (1-0.40)] / 163636.364 = [($500,000 – $14000) (1-0.40)] / 163636.364 = $486,000 / 163636.364 = $1.782 If we add more debt the EPS will increase d. with 30% in debt TIE = = EBIT/I =EBIT/14,000 Probability TIE 0.10 (7.14) 0.20 14.2 0.40 35.71 0.20 57.14 0.10 ...
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...Options Theory Applied to Alternative Energy Industry Christina Clowdus Bus: 630 March 20, 2012 Dr. Shaw Introduction In life, you always have options. It is no different in capital investment. In today's unpredictable business world, managers recognize how risky the most valuable investment opportunities often are, and how useful a flexible strategy can be. That's why they want to know all their options. Yet many current financial assessment tools fail to identify what investors can do to capitalize on future uncertain events. “Managerial flexibility to adapt and revise future decisions in order to capitalize on favorable future opportunities or to limit losses has proven vital to long-term corporate success in an uncertain and changing marketplace” (Brennan, M.J. and E.S. Schwartz 1985, p. 15). Utilizing a real options strategy allows businesses to capture the value of managerial flexibility in adapting decisions in response to unexpected market developments. When used as a conceptual tool, real options allow management to characterize and communicate the strategic value of an investment project (Bjerksund, P. and S. Ekern 1990). Traditional methods (e.g. net present value, discounted cash flow) fail to accurately capture the economic value of investments in an environment of widespread uncertainty and rapid change. Using real options theory, managers can more effectively target crucial opportunities to redeploy, delay, modify, or even abandon capital-intensive projects...
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...DERIVATIVES & RISK MANAGEMENT ASSIGNMENT – II By: ATTIKA RAJ, ROLL NO: MS10A009, MBA- 2012 BATCH, DOMS, IITM 2/21/2012 I. Case Analysis – Risk management Policy of Lufthansa Submitted in Assignment 1 II. Case Analysis: Commodity Market Derivatives Case Solutions: 1. Discuss the risk exposure of Amarnath hedge fund. Ans: The Amaranth hedge fund was exposed to following risks: a. Market risk: The risk that occurs from the volatility of investment returns b. Liquidity risk: It measures the degree of difficulty in exiting a given trading position c. Funding risk: It measures the extent to which they were able to meet margin calls on their natural gas position d. Capacity risk: The risk due to putting too much money into one particular strategy 2. What are the negatives to rolling a spread position? Ans: Negatives to rolling a spread position are: When rolling a spread position the investor expects the following months to which the contract was rolled over to be favourable and thus be able to unload its positions. But, if the market moves in a direction opposite to the one anticipated by the investor it can result in huge losses. Also, if the risk increases for a spread position with the increase in the leverage. In the case of Amaranth hedge fund, it had rolled its short positions prior to august into the next month, hoping that market conditions would change and enable it to unload its positions. There were now no more summer months into which it could roll these...
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...Explain how the option pricing formula developed by black and scholes can be used for common stock and bond valuation. Include in your discussion the consequences of using variance applied over the option instead of actual variance. Its generally known that Black and Scholes model became a standard in option pricing methods , with almost everything from corporate liabilities and debt instruments can be viewed as option (except some complicated instruments), we can modify the fundamental formula in order to fit the specifications of the instrument that will be valued. An argument done by Black and Scholes which was based on the past proposition of Miller and Modigliani a well as assuming some ideal conditions, States that value of the firm is a sum of total value of debt plus the total value of common stock. As well as the fact that in the absence of taxes, the value of the firm is independent of its leverage and the change of debt has no effect on the firm value. V = E + Dm V: value of the firm. E: shareholders right (common stock values). Dm: market value of the debt. As the above equation impose that Equity (common stock values) can be viewed as a call option on the firm value (due to the shareholders limited liability and with consideration that firm debt can be represent as a zero-coupon bond), where exercising the option means that equity holders buy the firm at the face value of debt (which is in this case will be the exercise price of the option), on the liquidation...
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...Exploiting Volatility In the times of recession and variability with the market getting volatile with very far glimpse of normalcy being stored, it would not be a good suggestion to just sit and watch rather it would be a better strategy to make ways to scale up the investment by learning to exploit volatility by diversifying asset allocation, rebalancing portfolio and option strategies. High return volatility definitely increases the fluctuation of the asset class weightings around the target allocation and increases the risk of significant deviation from the target but greater volatility also results in compounded returns . It is substantiated by the situation when the government is spending trillions of dollars to stimulate the growth in the economy and the corporate world is moving ahead with aggressive restructuring. Volatility can be exploited by diversifying the portfolio with bonds as bonds and equities are well correlated and the bonds in the portfolio also dramatically reduces the risk during financial crises. There would be loss but by a lower percentage than in the situation of all equity or lower bond ratio portfolios. The second situation is to avoid risk of market concentration when there is subsequent rise in equity market and then sudden collapse. For this systematic rebalancing is very advantageous as it reduces the downside risk by reducing volatility and investors increase long term portfolio performance by creating alpha and reducing risk. This approach...
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...Convertme, Inc Wenjing Chen Convertme Inc. (Convertme) issued convertible debt with several features that call into question whether certain terms (conversion option and make-whole provisions) in the senior subordinated convertible notes (the notes) should be considered embedded derivatives. The holders of the notes can surrender them for cash or shares The principal amount must be settled in cash Convertme is required to pay a premium equal to interest that would have been payable during the lockout period if it decides to call the notes during the lockout period FAS 133, par. 12 “Embedded” derivative instruments—implicit or explicit terms that affect some or all of the cash flows or the value of other exchanges required by the contract in a manner similar to a derivative instrument. An embedded derivative instrument shall be separated from the host contract and accounted for as a derivative instrument pursuant to this Statement if and only if all of the following criteria are met: a. The economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract. _b. The contract (“the hybrid instrument”) that embodies both the embedded derivative instrument and the host contract is not remeasured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur._ _c. A separate...
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...world market for a profit. Some countries even have an immediate market for their minerals like oil and gold. Almost all LDCs and a number of the other countries that needed bail out funds, have these resources that can be sold for profit. However in a situation where quick funds are needed, selling these resources would take a considerably long period of time which is not available at that instance. This can be remedied by the sell of long term covered call options on the resources of the different countries that need the funds. An options strategy is when an investor holds a long position (owns the asset: in our case mineral) in an asset and writes (sells) call options on that same asset in an attempt to generate increased income from the asset. This strategy is often employed when an investor has a short-term neutral view on the asset and for this reason holds the asset long and simultaneously have a short position via the option to generate income from the option premium.By selling Long term covered call options, the country makes money that not only can be used to fund bailouts but can also be used for other budgetary expenditures. To expand on this...
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