1. Define and discuss the following risks; loan portfolio/concentration, foreign exchange, and liquidity within the context of financial institutions. How are the FIs affected by these risks and how so they deal with them?
2. Telfast expects perpetual earnings before interest and taxes of $2 million per year. The firm’s pre-tax cost of debt is 15% per annum and its annual interest expense is $100,000. Company analysts estimate that the unlevered cost of Telfast’s equity is 20%. The company tax rate is 30%. What is the value of the firm?