You have invested a substantial amount of money in three different unlisted financial securities. These investments are not traded on the financial market and, as a result, they do not have observable market prices, but you have gathered the following information: a) Company bonds: $1, 000 face-value with 6 years to maturity, paying 11% p.a. in semi-annual coupons. Currently the yield on 6-year government bonds is 6% p.a. and you think that a risk premium of 4% p.a. is appropriate for these company bonds, b) Preference shares: Irredeemable, paying 8% annually on $10 par value and your estimate of the risk premium for these shares is 7% p.a., and c) Ordinary shares: Five years ago the annual dividend paid by the company was12¢/share and given this year’s dividend of 18.5¢/share you expect future dividends to grow at the same annual compound rate. From your analysis of the variability of the company’s earnings over the last five years, you deem a reasonable estimate of the company’s market risk (beta) to be 1.7. Also you know that the long-term historical average return from a market portfolio investment is 13 percent p.a. On the basis of this information estimate the current value of the Company bonds, the Preference shares, and the Ordinary shares. You are the Chief Financial Officer of an Australia listed company which exports large amounts and values of commodities to overseas countries. Explain the following terms as they relate to your company. (Maximum word limit 150 words each) i. Exposure to exchange rate risk, ii. Translation exposure, iii. Transaction exposure, and iv. Economic exposure. Students are encouraged to start with the textbook information and then move to other sources for extra information and examples Please download the attached file.
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