In Minsky's theory, all other things being equal, greater measures of leverage in investment result in, O a. Higher profits, with certainty O b. Lower profitability Higher expected profitability and higher risks
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- Answer these three questions about early-stage corporate finance: Why do very small companies tend to raise money from private investors instead of through an IPO? Why do small, young companies often prefer an IPO to borrowing from a bank or issuing bonds? Who has better information about whether a small firm is likely to earn profits, a venture capitalist or a potential bondholder, and why?The conflict of preferences occurs because O a. Customers of firms have different needs to those assumed by suppliers O b. Primary investors want low-cost liquidity and certainty, and the ultimate borrowers want long term risk-bearing capital O .Primary investors want a completely risk-free investment with high returns and borrowing firms offer only high risk/low return as their securities O d. Preference shares do not carry a sufficiently high dividend, given their riskSubmit All Question 28 of 30 Suppose Jon decides to purchase either a long-term Treasury bond or a share of stock from a company in the Dow Jones Industrial Average. Assume that either one will behave similarly to the average security in their class, and ignore the effect of market conditions. Which security is more likely to lose most of its value in the next year after Jon purchases it? O the probabilities of major loss are the same they are both guaranteed to increase in value the stock the bond Based on historical returns, which security is likely to grow more significantly in value after Jon purchases it? the bond 8:27 PM a 46°F E 4) 12/15/202
- Suppose instead Larry decides to buy 100 shares of NanoSpeck stock. Which of the following statements are correct? Check all that apply. O C The price of his shares will rise if NanoSpeck issues additional shares of stock. NanoSpeck earns revenue when Larry purchases 100 shares, even if he purchases them from an existing shareholder. Expectations of a recession that will reduce economywide corporate profits will likely cause the value of Larry's shares to decline.According to modern portfolio theory, the idea that investors with different indifference curves will hold the same portfolio of risky securities is a result of O a. the separation theorem O b covariance O c. the normal distribution assumption O d. diminishing marginal utility of income**Practice** I have been trying to practcie this question but I always seem to get it wrong What is the expected final wealth of each agent? Pay attention to the names in each option!A. Anna’s expected final wealth is 1440 and Bob’s expected final wealth is 980B. Anna’s expected final wealth is 1020 and Bob’s expected final wealth is 1380C. Anna’s expected final wealth is 1460 and Bob’s expected final wealth is 1105D. Anna’s expected final wealth is 1140 and Bob’s expected final wealth is 1200E. None of the options above
- 4. Ted Baxter runs a small, very stable newspaper company insouthern Oregon. The paper has been in business for 25 years.The total value of the firm’s capital stock is $1 million, which Tedowns outright. This year the firm earned a total of $250,000after out-of-pocket expenses. Without taking the opportunitycost of capital into account, this means that Ted is earning a25 percent return on his capital. Suppose that risk-free bondsare currently paying a rate of 10 percent to those who buy them.d. How much excess profit is Ted earning?4. Ted Baxter runs a small, very stable newspaper company insouthern Oregon. The paper has been in business for 25 years.The total value of the firm’s capital stock is $1 million, which Tedowns outright. This year the firm earned a total of $250,000after out-of-pocket expenses. Without taking the opportunitycost of capital into account, this means that Ted is earning a25 percent return on his capital. Suppose that risk-free bondsare currently paying a rate of 10 percent to those who buy them.a. What is meant by the “opportunity cost of capital”?b. Explain why opportunity costs are “real” costs even thoughthey do not necessarily involve out-of-pocket expenses. c. What is the opportunity cost of Ted’s capital?d. How much excess profit is Ted earning?Ceteris paribus, the primary advantage of investing in mutual funds over individual stocks or bonds is that mutual funds: Select one: O a. always earn a higher rate of return than an investor could obtain with a single stock or bond. Ob. allow investors with relatively small amounts of money to diversify their investment portfolios. C. offer investors less inflation risk, and thus a higher return, than an investor could obtain with a single stock. O d. offer investors less market risk, and thus a higher return, than an investor could obtain with a single stock.
- 44 By implementing any hedge t of Solect one: O a you should try to make money on both sides of the transaction: that way you moke morey coming and going. O b you should spend at least as much time working the hedge as working the underlyling deal itselt. O c. you should agree to anything your banker puts in front of your face. O a your losses on one side should about equal your gains on the other side. 45 Which of the following is NOT one of the key factors that have motivated Honda to make investments in America? t of Select one: O a Direct investments in America might hove been an integral part of Honda's overail corporate strategy designed to bolster its competitive position vis-ò-vis its domestic rivals, such as Toyoto and Nissan. O b Honda wanted to export its US.-manufactured cars to other markets as well. O . Honda wanted to increase employment in America. O a Honda wanted to bypass trade barriers imposed on Japanese automobile manufacturers.The term 'random walk' is used in investments to refer to O A. stock price changes that are random but predictable O B. stock prices that respond slowly to both old and new information O C. stock price changes are independent of one another and unpredictable O D. stock price changes that follow the pattern of past price changes O E. stock price changes that are not efficientAs and example of a possible investment restriction, an insurer mah only be allowed to invest up to 20 percent of its assets in common stock. What penalty is imposed upon the insurer that invests 30 percent of available assets in common stock?A. The additional 10 percent must be disposed of by year endB. The state regulators would impose a 10 percent fine on the insurer.C. The additional 10 percent would be a nonadmitted asset.D. The additional 10 percent would only be listed at cost.
