Long-term (Strategic) Financial Plans: These plans contain the envisaged long term financial activities and they figure out the effects of these activities on the financial position of the company. Although the time frame covered is 2-5 years, 5 year strategic plans which are revised as the new data arrives are used generally.

Transaction costs are the costs incurred in getting the marketable securities converted into cash or vice versa.

Unlike Baumol, Miller and Orr model (1966) assumes that the cashflow of a company has a stochastic structure, as different amounts of cash payments are made on different points of time. It is assumed that the movements in cash balance occur randomly. Miller and Orr also suggest that there exist control limits, which sets control points for time and size of transfers between Investment Account and Cash Accounts.

Credibility: Working capital management has great significance for all companies, but it is more critical for smaller companies which have more restricted funding capabilities. 

Long-term (Strategic) Financial Plans: These plans contain the envisaged long term financial activities and they figure out the effects of these activities on the financial position of the company. Although the time frame covered is 2-5 years, 5 year strategic plans which are revised as the new data arrives are used generally. Typically the companies that have higher operational risk and short production cycles prefer shorter term planning horizons. Longer term plans are generally used by the purposes of Research and Development, marketing and new product development, fixed investments and basic financing. These plans are supported by annual budgets and profit plans. Therefore, the correct option is C.

The securities above the security market line (SML) are over-valued. So A and B are overvalued, D and C are under-valued, E is correctly valued.

Short-term (Operational) Financial Plans: They consist of the envisaged financial activities and the projected effects of these activities on the financial position of the company. Short term financial plans cover generally 1-2 years and uses the sales forecasts, operational and financial data as inputs. The basic outputs, the operational budgets for divisions, cash budget and proforma financial reports. Therefore, the correct option is C.

Even though coupon interest rates are fixed, bond values still fluctuate with the changes in market interest rates. Bonds exhibit interest rate risk, which is the risk that the return from the bond will change according to changes in the interest rates. An increase in interest rates reduces bond values. However, the decline in value of long-term bonds is more than the decline in value of short–term bonds because a change in interest rates has only a modest impact on the present value of near-term cash flows but a greater impact on the present value of distant cash flows. Bonds with longer maturity have a higher sensitivity to changes in market interest rates and have higher interest rate risk.

Bonds carry reinvestment rate risk, which is the risk that cash flows received may not be able to be reinvested at the expected rates if market rates have changed. It is important when there is a decrease in market interest rates. When a bond investor makes a short-term bond investment, if market interest rates decline when this investment matures, the proceeds from short-term investment will be reinvested at a lower interest rate. Long-term bond investors face higher interest rate risk and will have a disadvantage when market interest rates increase whereas short-term bond investor faces higher reinvestment rate risk and will have a disadvantage when market interest rates decline.

As also understood from the information given, all of the statements in the options about bond investors are correct, so the correct answer is E.

There ara four types of costs ncurred in the course of receivables management:

1. Administrative cost
2. Capital cost
3. Delinquency cost
4. Default cost

That is definition of correlation. If the correlation is negative then the prices or returns are moving in inverse directions, if the correlation is positive they are moving in same directions and if correlation is zero then there is no relation.

for the given statement the nominal interest rate should be:

(1.05 x 1.15) - 1 = %20.75

Coupon Payments, Price Changes and Initial Price do all affects the rate of return of a bond.

The component given in the option A,B,C and D are current assets. Bank payments are one of the current liabilities. The correct answer is E. 

Cash budget is a management plan for the most important factor of a company’s viability — its cash position. 

Combining assets with negaive correlation decreases both the risk and rate of return of a portfolio.

Transaction cost is mainly cash-related cost. Inventories have nothing to do with it.

Hedging policy, which is also named as matching policy, proposes a strategy by which the fluctuating part of the current assets are financed by the current liabilities. Consequently, the fixed and permanent current assets are financed through long-term sources.

The length of the company’s operating and cash conversion cycles determines the level of liquidity.