Homework Answers
1]
A share of common stock is an asset for its owner because it generates returns for the owner in the form of dividends and capital appreciation.
A share of common stock is a liability for the company because it is source of capital which must be paid back to the investor in the event of liquidation. Any source of capital such as common stock, preferred stock or debt is a liability for the company because it is ultimately owed back to the investors.
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chapter 2: ANSWER THE FOLLOWING QUESTIONS
QUESTIONS 1. Why is a share of Microsoft common stock...
Short Answer Questions: 1. What is the typical relationship among interest rates on three-month Treasury bills,...
Short Answer Questions: 1. What is the typical relationship among interest rates on three-month Treasury bills, long-term Treasury bonds, and Baa corporate bonds? 2. Why is a share of Microsoft common stock an asset for its owner and a liability for Microsoft? 3. If you suspect that a company will go bankrupt next year, which would you rather hold, bonds issued by the company or equities issued by the company? Why? 4. How can the adverse selection problem explain why...
Why might you be willing to make a loan to your neighbor by putting funds in...
Why might you be willing to make a loan to your neighbor by putting funds in a savings account earning a 5% interest rate at the bank and having the bank lend her the funds at a 10% interest rate rather than lend her the funds yourself? a. Your neighbor suffers from information asymmetry. b. There will always be a moral hazard problem in lending to a friend or neighbor. c. There is no way to diversify your savings except...
1) A borrower who takes out a loan usually has better information about the potential returns...
1) A borrower who takes out a loan usually has better
information about the potential returns and risk of the investment
projects he plans to undertake than does the lender. This
inequality of information is called
A) moral hazard.
B) asymmetric information. C) noncollateralized risk. D)
adverse selection.
2) If bad credit risks are the ones who most actively seek
loans then financial intermediaries face the problem of
A) moral hazard.
B) adverse selection.
C) free-riding.
D) costly state verification....
1. Cause 2. Dynamics 3.draw a figure Ilallulul chsis that included debt deflation was the Great Depression, the worst et nomic contraction in U.S. history CATIO +The Mother of All Financial Crise...
1. Cause
2. Dynamics
3.draw a figure
Ilallulul chsis that included debt deflation was the Great Depression, the worst et nomic contraction in U.S. history CATIO +The Mother of All Financial Crises: The Great Depressi In 28 and 192 prices doubled in the U.S stock market. Federal Reserve offcal vie market boom as excessive speculation. To curb it, they pursued a tigh monetary policy to raise interest rates; the Fed got more than it bargained for when th stock market...
1. Why do managers of financial institutions care so much about the activities of the Central...
1. Why do managers of financial institutions care so much about the activities of the Central Bank? ( 3 marks) 2. If I can buy a car today for $50,000 and it is worth $100,000 in extra income next year to me because it enables me to get a job as a travelling salesman, should I take a loan from Sharky Finance at a 90% interest rate if no one else will give me a loan? Will I be better...
9. The strategy of reducing or eliminating risks by13. Tax taking a small share in many...
9. The strategy of reducing or eliminating risks by13. Tax taking a small share in many independent events or by A) who writes the check to the government taking advantage of the predictability associated with B) who really pays the tax. large numbers of independent events is known as: A) floating. B) specializing. C) pooling. D) screening. incidence refers to: C) the deadweight loss from the tax. D) the total revenue that the government collects from the tax 14. An...
Chapter 12: What is money? What are the three functions of money? What is the difference...
Chapter 12: What is money? What are the three functions of money? What is the difference between fiat money and commodity money? How can banks affect the money supply? What is the reserve ratio? What is the money multiplier? How did banking develop? How are required reserves different from excess reserves? Know the differences between bond markets, stock markets, banks, and mutual funds, and know the characteristics of bonds, stocks, banks, and mutual funds. How do banks help solve problems...
1. Why are financial markets important to the health of the economy? 2. When interest rates...
1. Why are financial markets important to the health of the economy? 2. When interest rates rise, how might businesses and consumers change their economic behaviour? 3. How can a change in interest rates affect the profitability of financial institutions? 4. Is everybody worse off when interest rates rise? 5. What effect might a fall in stock prices have on business investment? 6. What effect might rise in stock prices have on consumers’ decisions to spend? 7. How does a...
1. Why is the basic goal of corporations in free-market competitive economies to maximize shareholders' wealth...
1. Why is the basic goal of corporations in free-market competitive economies to maximize shareholders' wealth rather than alternative goals, such as maximizing and why do we observe deviations from this goal in countries where industries are less competitive and there is more government intervention in economic activities? Give some examples based on evidence from other countries. 2. What is the definition of a multinational corporation (MNC) and what are the major benefits from becoming a multinational corporation, rather than...
Chapter 1 page 23 Questions: 1.4.11.12,13,14 1. Explain the meaning of surplus units and deficit units....
Chapter 1 page 23 Questions: 1.4.11.12,13,14 1. Explain the meaning of surplus units and deficit units. Provide an example of each. Which types of financial institutions do you deal with? Explain whether you are acting as a surplus unit or a deficit unit in your relationship with each financial institution ANSWER 2. Explain the primary use of funds for commercial banks versus savings institutions. ANSWER 3. With regard to the profit motive, how are credit unions different from other financial...
Short Answer Questions: 1. What is the typical relationship among interest rates on three-month Treasury bills, long-term Treasury bonds, and Baa corporate bonds? 2. Why is a share of Microsoft common stock an asset for its owner and a liability for Microsoft? 3. If you suspect that a company will go bankrupt next year, which would you rather hold, bonds issued by the company or equities issued by the company? Why? 4. How can the adverse selection problem explain why...
1) A borrower who takes out a loan usually has better
information about the potential returns and risk of the investment
projects he plans to undertake than does the lender. This
inequality of information is called
A) moral hazard.
B) asymmetric information. C) noncollateralized risk. D)
adverse selection.
2) If bad credit risks are the ones who most actively seek
loans then financial intermediaries face the problem of
A) moral hazard.
B) adverse selection.
C) free-riding.
D) costly state verification....
1. Cause
2. Dynamics
3.draw a figure
Ilallulul chsis that included debt deflation was the Great Depression, the worst et nomic contraction in U.S. history CATIO +The Mother of All Financial Crises: The Great Depressi In 28 and 192 prices doubled in the U.S stock market. Federal Reserve offcal vie market boom as excessive speculation. To curb it, they pursued a tigh monetary policy to raise interest rates; the Fed got more than it bargained for when th stock market...
9. The strategy of reducing or eliminating risks by13. Tax taking a small share in many independent events or by A) who writes the check to the government taking advantage of the predictability associated with B) who really pays the tax. large numbers of independent events is known as: A) floating. B) specializing. C) pooling. D) screening. incidence refers to: C) the deadweight loss from the tax. D) the total revenue that the government collects from the tax 14. An...
1. Why is the basic goal of corporations in free-market competitive economies to maximize shareholders' wealth rather than alternative goals, such as maximizing and why do we observe deviations from this goal in countries where industries are less competitive and there is more government intervention in economic activities? Give some examples based on evidence from other countries. 2. What is the definition of a multinational corporation (MNC) and what are the major benefits from becoming a multinational corporation, rather than...
Chapter 1 page 23 Questions: 1.4.11.12,13,14 1. Explain the meaning of surplus units and deficit units. Provide an example of each. Which types of financial institutions do you deal with? Explain whether you are acting as a surplus unit or a deficit unit in your relationship with each financial institution ANSWER 2. Explain the primary use of funds for commercial banks versus savings institutions. ANSWER 3. With regard to the profit motive, how are credit unions different from other financial...
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