Investments Assignment 1

Investments Assignment 1 - B ryan Redd Principles of...

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Bryan Redd Principles of Investments Assignment 1 Spring 2010 Dr. Malakhov BKM Chapter 1 7. A. The real asset would be the new factory that is being constructed. The underlying financial asset would be the repayment of the principal and interest of loan. This repayment is the direct result of the income generated by the real asset. Toyota receives a financial asset in the form of the loan and the receives a claim on the real asset, that is the factory being constructed. Toyota could create financial assets such as issuance of stock or bonds to help finance the construction of the new factory. The new real asset being created is the factory and the subsequent results that will come from its operations that represent wealth for Toyota. B. When Toyota repays its loan it destroys the financial asset that is the loan. At this point in time, Toyota has most likely finished the factory and thus created this real asset. The bank receives a real asset in the form of payments for the loan and Toyota relieves the financial asset that is the banks claim to repayment of the loan. C. When Toyota uses the $10 million in cash to purchase additional inventory it trades the real asset of cash in order to receive another real asset in the form of the spare parts inventory. This transaction potentially affects certain forms of financial assets such as
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Investments Assignment 1 - B ryan Redd Principles of...

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