Equities

Nordvik Telecom has 300 million shares trading at €9.00. To cut its debt it announces a 1-for-3 rights issue at €6.00. You hold 3,000 shares, but the letter goes unopened and your rights lapse without being sold for you.

Westlake Water has just paid a dividend of $3.00 a share. Regulation keeps its growth steady at 2.5% a year, and investors require 7.5%. Next year's earnings are forecast at $4.10 a share.

A junior colleague values Kestrel Bio, which has just paid a $1.00 dividend, with the Gordon model. Dividends are growing 10% a year now, and they put in r = 8% and g = 9% “to be conservative”. The spreadsheet shows a negative price.

Halden Foods has 200 million shares at $40.00, net income of $500m, EBITDA of $1,000m, debt of $2,000m and cash of $1,500m. It spends $1,000m of its cash buying back shares at $40.00. Assume the share price and net income do not change.

A cap-weighted index holds three stocks with weights at the start of the day of 50%, 30%, 20%. They return +4%, −2%, +10%. Your risk system stores log returns.

Fund A reports a monthly volatility of 4%. Fund B reports a daily volatility of 0.9%. Both managers say their fund is the calmer one.

The fund shorted 5,000 shares of a UK retailer at £12.00. It held the short for 120 days at a borrow fee of 3% a year (actual/360, on the starting value), paid the lender a £0.30 dividend, and bought back at £10.50.

An insurer holds €1 million of ordinary shares in Corvid Industries. A hedge fund is short €1 million of the same shares (50,000 shares at €20). You are asked to describe each one's worst case.