PRIN.OF CORPORATE FINANCE
PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 33, Problem 17PS

a)

Summary Introduction

To explain: The reason why it is not possible for managers to give 100% importance to shareholders interests and none of it to their own.

b)

Summary Introduction

To list: The mechanism used around the world to keep the agency problems under control.

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D. (1) Consider the following cash inflows of a financial product. Given that the market interest rate is 12%, what price would you pay for these cash flows? Year 0 1 2 3 4 Cash Flow 160 170 180 230
Explain why financial institutions generally engage in foreign exchange tradingactivities. Provide specific purposes or motivations behind such activities.
A. In 2008, during the global financial crisis, Lehman Brothers, one of the largest investment banks, collapsed and defaulted on its corporate bonds, causing significant losses for bondholders. This event highlighted several risks that investors in corporate bonds might face. What are the key risks an investor would encounter when investing in corporate bonds? Explain these risks with examples or academic references. [15 Marks]
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