The bank loan is a financial liability for Lanni.
(Lanni's IOU is the bank's financial
The cash Lanni receives is a financial asset.
The new financial asset created is
Lanni's promissory note (that is, Lanni’s IOU to the bank).
Lanni transfers financial assets (cash) to the software developers.
In return, Lanni gets
a real asset, the completed software.
No financial assets are created or destroyed; cash is
simply transferred from one party to another.
Lanni gives the real asset (the software) to Microsoft in exchange for a financial asset,
1,500 shares of Microsoft stock.
If Microsoft issues new shares in order to pay Lanni, then
this would represent the creation of new financial assets.
Lanni exchanges one financial asset (1,500 shares of stock) for another ($120,000).
Lanni gives a financial asset ($50,000 cash) to the bank and gets back another financial asset
The loan is "destroyed" in the transaction, since it is retired when paid off and no
For commercial banks, the ratio is: $140.1/$11,895.1 = 0.0118
For non-financial firms, the ratio is: $12,538/$26,572 = 0.4719
The difference should be expected primarily because the bulk of the business of
financial institutions is to make loans; which are financial assets for financial
At t = 0, the value of the index is: (90 + 50 + 100)/3 = 80
At t = 1, the value of the index is: (95 + 45 + 110)/3 = 83.333
The rate of return is: (83.333/80)
1 = 4.17%
In the absence of a split, Stock C would sell for 110, so the value of the index
would be: 250/3 = 83.333
After the split, Stock C sells for 55.
Therefore, we need to find the divisor (d)
83.333 = (95 + 45 + 55)/d
d = 2.340
The return is zero.
The index remains unchanged because the return for each
stock separately equals zero.
Total market value at t = 0 is: ($9,000 + $10,000 + $20,000) = $39,000
Total market value at t = 1 is: ($9,500 + $9,000 + $22,000) = $40,500
Rate of return = ($40,500/$39,000) – 1 = 3.85%
The return on each stock is as follows: