Week 1 Homework Assignment

Week 1 Homework Assignment - 1. Suppose you discover a...

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Unformatted text preview: 1. Suppose you discover a treasure chest of $10 billion in cash. a. Is this a real or financial asset? Real Asset – Cash Financial b. Is society any richer for the discovery? No, not until I spend it. c. Are you wealthier? Yes. d. Can you reconcile your answers to ( b ) and ( c )? Is anyone worse off as a result of the discovery? Society is worse off 6. Consider Figure 1.5 , which describes an issue of American gold certificates. a. Is this issue a primary or secondary market transaction? Primary b. Are the certificates primitive or derivative assets? Derivative c. What market niche is filled by this offering? Commodities Investors avoid storage costs 7. Discuss the advantages and disadvantages of the following forms of managerial compensation in terms of mitigating agency problems, that is, potential conflicts of interest between managers and shareholders. a. A fixed salary. ? b. Stock in the firm. ? c. Call options on shares of the firm. ? 12. Give an example of three financial intermediaries and explain how they act as a bridge between small investors and large capital markets or corporations. 1-Mutual Funds- Mutual funds are a collection of various stocks and bonds that are rolled up into a single investment. 1 share of a mutual funds can encompass hundreds of companies. Commingled 2-Investment Companies- collect funds from individual investors...
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This note was uploaded on 02/26/2012 for the course FIN 102 taught by Professor Franks during the Spring '12 term at University of Phoenix.

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Week 1 Homework Assignment - 1. Suppose you discover a...

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