CHAPTER 1: THE INVESTMENT ENVIRONMENT PROBLEM SETS
1. Ultimately, it is true that real asts determine the material well being of an economy.
Nevertheless, individuals can benefit when financial engineering creates new products that allow them to manage their portfolios of financial asts more efficiently. Becau
bundling and unbundling creates financial products with new properties and nsitivities to various sources of risk, it allows investors to hedge particular sources of risk more
efficiently.
2.Securitization requires access to a large number of potential investors. To attract the
investors, the capital market needs:
(1) a safe system of business laws and low probability of confiscatory
taxation/regulation;
(2) a well-developed investment banking industry;
(3) a well-developed system of brokerage and financial transactions, and;
(4)well-developed media, particularly financial reporting.
The characteristics are found in (indeed make for) a well-developed financial market. 3. Securitization leads to disintermediation; that is, curitization provides a means for
market participants to bypass intermediaries. For example, mortgage-backed curities channel funds to the housing market without requiring that banks or thrift institutions
make loans from their own portfolios. As curitization progress, financial
intermediaries must increa other activities such as providing short-term liquidity to
consumers and small business, and financial rvices.
4. Financial asts make it easy for large firms to rai the capital needed to finance their
investments in real asts. If General Motors, for example, could not issue stocks or
bonds to the general public, it would have a far more difficult time raising capital.
Contraction of the supply of financial asts would make financing more difficult,
thereby increasing the cost of capital. A higher cost of capital results in less investment and lower real growth.
5. Even if the firm does not need to issue stock in any particular year, the stock market is still
important to the financial manager. The stock price provides important information about how the market values the firm's investment projects. For example, if the stock price ris considerably, managers might conclude that the market believes the firm's future prospects are bright. This might be a uful signal to the firm to proceed with an investment such as an expansion of the firm's business.
In addition, the fact that shares can be traded in the condary market makes the shares
more attractive to investors since investors know that, when they wish to, they will be able to ll their shares. This in turn makes investors more willing to buy shares in a primary offering, and thus improves the terms on which firms can rai money in the equity market.
6. a. Cash is a financial ast becau it is the liability of the federal government.
b. No. The cash does not directly add to the productive capacity of the economy.
c. Yes.
d. Society as a whole is wor off, since taxpayers, as a group will make up for the
汪峰最经典的歌曲liability.
7. a. The bank loan is a financial liability for Lanni. (Lanni's IOU is the bank's financial
ast.) The cash Lanni receives is a financial ast. The new financial ast created
is Lanni's promissory note (that is, Lanni’s IOU to the bank).
b. Lanni transfers financial asts (cash) to the software developers. In return, Lanni
gets a real ast, the completed software. No financial asts are created or
destroyed; cash is simply transferred from one party to another.
c. Lanni gives the real ast (the software) to Microsoft in exchange for a financial
ast, 1,500 shares of Microsoft stock. If Microsoft issues new shares in order to pay
Lanni, then this would reprent the creation of new financial asts.
d. Lanni exchanges one financial ast (1,500 shares of stock) for another ($120,000).
Lanni gives a financial ast ($50,000 cash) to the bank and gets back another
financial ast (its IOU). The loan is "destroyed" in the transaction, since it is retired
when paid off and no longer exists.
8. a.
Asts
Liabilities &
健身音乐Shareholders’ equity
Cash $ 70,000 Bank loan $ 50,000 Computers 30,000 Shareholders’ equity Total 50,000
$100,000 Total $100,000
Ratio of real asts to total asts = $30,000/$100,000 = 0.30
b.
Asts
降妖宝杖
Liabilities & Shareholders’ equity Software product*
$ 70,000 Bank loan $ 50,000 Computers
30,000 Shareholders’ equity Total 50,000 $100,000 Total $100,000 *Valued at cost
Ratio of real asts to total asts = $100,000/$100,000 = 1.0
c.
Asts
Liabilities & Shareholders’ equity Microsoft shares
$120,000 Bank loan $ 50,000 Computers
30,000 Shareholders’ equity Total 100,000 $150,000 Total $150,000 Ratio of real asts to total asts = $30,000/$150,000 = 0.20
Conclusion: when the firm starts up and rais working capital, it is characterized by
a low ratio of real asts to total asts. When it is in full production, it has a high
ratio of real asts to total asts. When the project "shuts down" and the firm lls it
off for cash, financial asts once again replace real asts.
9. For commercial banks, the ratio is: $107.5/$10,410.9 = 0.010
For non-financial firms, the ratio is: $13,295/$25,164 = 0.528
The difference should be expected primarily becau the bulk of the business of
financial institutions is to make loans; which are financial asts for financial
institutions.
10. a. Primary-market transaction
b. Derivative asts
c.
Investors who wish to hold gold without the complication and cost of physical
storage.
长方体的认识桑康11. a. A fixed salary means that compensation is (at least in the short run) independent of
the firm's success. This salary structure does not tie the manager’s immediate
compensation to the success of the firm. However, the manager might view this as
the safest compensation structure and therefore value it more highly.
b. A salary that is paid in the form of stock in the firm means that the manager earns the
most when the shareholders’ wealth is maximized. This structure is therefore most
likely to align the interests of managers and shareholders. If stock compensation is
overdone, however, the manager might view it as overly risky since the manager’s
career is already linked to the firm, and this undiversified exposure would be
exacerbated with a large stock position in the firm.
c. Call options on shares of the firm create great incentives for managers to contribute to
the firm’s success. In some cas, however, stock options can lead to other agency
problems. For example, a manager with numerous call options might be tempted to
take on a very risky investment project, reasoning that if the project succeeds the
payoff will be huge, while if it fails, the loss are limited to the lost value of the
options. Shareholders, in contrast, bear the loss as well as the gains on the project,
and might be less willing to assume that risk.
12. Even if an individual shareholder could monitor and improve managers’ performance, and
thereby increa the value of the firm, the payoff would be small, since the ownership share in a large corporation would be very small. For example, if you own $10,000 of GM stock and can increa the value of the firm by 5%, a very ambitious goal, you benefit by only:
酷爱的反义词0.05 × $10,000 = $500
In contrast, a bank that has a multimillion-dollar loan outstanding to the firm has a big stake in making sure that the firm can repay the loan. It is clearly worthwhile for the bank to
spend considerable resources to monitor the firm.
13. Mutual funds accept funds from small investors and invest, on behalf of the investors,
in the national and international curities markets.
Pension funds accept funds and then invest, on behalf of current and future retirees, thereby channeling funds from one ctor of the economy to another.
Venture capital firms pool the funds of private investors and invest in start-up firms.
Banks accept deposits from customers and loan tho funds to business, or u the funds to buy curities of large corporations.
14. Treasury bills rve a purpo for investors who prefer a low-risk investment. The
lower average rate of return compared to stocks is the price investors pay for
predictability of investment performance and portfolio value.
15. With a “top-down” investing style, you focus on ast allocation or the broad composition
of the entire portfolio, which is the major determinant of overall performance. Moreover,
top-down management is the natural way to establish a portfolio with a level of risk
consistent with your risk tolerance. The disadvantage of an exclusive emphasis on top-
down issues is that you may forfeit the potential high returns that could result from
identifying and concentrating in undervalued curities or ctors of the market.
名人名言100句
With a “bottom-up” investing style, you try to benefit from identifying undervalued curities.苹果耳机真假
The disadvantage is that you tend to overlook the overall composition of your portfolio,
which may result in a non-diversified portfolio or a portfolio with a risk level inconsistent
with your level of risk tolerance. In addition, this technique tends to require more active
management, thus generating more transaction costs. Finally, your analysis may be incorrect, in which ca you will have fruitlessly expended effort and money attempting to beat a
simple buy-and-hold strategy.
16. You should be skeptical. If the author actually knows how to achieve such returns, one must
question why the author would then be so ready to ll the cret to others. Financial markets are very competitive; one of the implications of this fact is that riches do not come easily.
High expected returns require bearing some risk, and obvious bargains are few and far
between. Odds are that the only one getting rich from the book is its author.
17. a. The SEC website defines the difference between saving and investing in terms of
the investment alternatives or the financial asts the individual choos to acquire.
According to the SEC website, saving is the process of acquiring a “safe” financial
ast and investing is the process of acquiring “risky” financial asts.
b. The economist’s definition of savings is the difference between income and
consumption. Investing is the process of allocating one’s savings among available
asts, both real asts and financial asts. The SEC definitions actually reprent
(according the economist’s definition) two kinds of investment alternatives.
18. As is the ca for the SEC definitions (e Problem 17), the SIA defines saving and
investing as acquisition of alternative kinds of financial asts. According to the SIA,
saving is the process of acquiring safe asts, generally from a bank, while investing is
the acquisition of other financial asts, such as stocks and bonds. On the other hand,
the definitions in the chapter indicate that saving means spending less than one’s income.
Investing is the process of allocating one’s savings among financial asts, including
savings account deposits and money market accounts (“saving” according to the SIA),
other financial asts such as stocks and bonds (“investing” according to the SIA), as
well as real asts.
