CHAPTER 2 FINANCIAL MARKETS AND INSTITUTIONS 1. You recently sold 100 shares of Microsoft stock to your brother at a family reunion. At the reunion your brother gave you a check for the stock and you gave your brother the stock certificates. Which of the following best describes this transaction? a. This is an example of a direct transfer of capital. b. This is an example of a primary market transaction. c. This is an example of an exchange of physical assets. d. This is an example of
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inflation is going up existing bonds, with given nominal values and coupons, do not offer a yield that compensates for inflation (r = real rate + expected inflation). Thus, demand is lowered and prices of bonds fall until they offer the required yield. In addition, if prices are expected to go up it makes sense to consume today (incl. buying capital goods) before prices increase. For business today’s bonds have a low real yield, why it is profitable to increase the supply of bonds and invest more. They will
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Merit Enterprise Corp. Sara Lehn, chief financial officer of Merit Enterprise Corp., was reviewing her presentation one last time before her upcoming meeting with the board of directors. Merit�s business had been brisk for the last two years, and the company�s CEO was pushing for a dramatic expansion of Merit�s production capacity. Executing the CEO�s plans would require $4 billion in capital in addition to $2 billion in excess cash that the firm had built up. Sara�s immediate task was to brief the
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Corporation: Bond Accounting In December 2008 Rene Cook sat in her cubicle trying to remember what she had learned in business school about bonds and bond accounting. Ms. Cook, a new MBA and special assistant in a training assignment with the company president, had just met with David Lyons, president of Lyons Document Storage Corporation. He had asked her to think about the possible consequences of repurchasing company bonds outstanding using cash that he felt could be obtained by issuing new bonds with
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ACCT 504 WEEK 6 CASE STUDY 3 – CASH BUDGETING – LBJ COMPANY A+ Graded Tutorial Available At: http://hwsoloutions.com/?product=week-6-case-study-3-cash-budgeting-lbj-company Visit Our website: http://hwsoloutions.com/ Product Description ACCT 504 Week 6 Case Study 3 – Cash Budgeting – LBJ Company, What are the three sections of a Cash Budget, and what is included in each section? 1. The cash receipts section includes expected receipts from the company’s principal source(s) of cash. It
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The theoretical price of the MMI March ’86 futures contract is(Assume 23 days): PV[S(T)]=S(t)-PV(3.41)=311.74-3.41*e^(-0.068*23/365)=308.34 F(t,T)=308.34*e^(0.068*23/365)=309.67 Theoretical price= 309.67 Market future price= 313.55 Spot price today=311.74 Assume that Jim is subject to a $5,000,000 position limit: Cash Flow at t Cash Flow at T Borrow money 311.74*110%=342.91 -342.91*e^(0.068*23/365)= -344.38 Margin payment 311.74*10%=-31.17 31.17 Buy underlying -311.74 S(T)+3
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overvalued shares. In case of investment to the undervalued shares, with thorough research and sharp evaluation, hedge funds buy huge amount of undervalued bonds from a company and wait until the price of the bonds goes up. When they figure out the highest increase rate of the bonds’ price, hedge funds, at the appropriate moment, sell all the bonds, thereby creating profits from the margins. This is the basic way hedge funds earn profits when they buy the undervalued
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Lyons Document Storage Corporation: Bond Accounting. In December 2014, Rene Cook sat in her cubicle trying to remember what she had learned in business school about bonds and bond accounting. Ms. Cook, a new MBA and special assistant in a training assignment with the company president, had just met with David Lyons, president of Lyons Document Storage Corporation. He had asked her to think about the possible consequences of repurchasing company bonds outstanding using cash that he felt could
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Historically, how has political instability impacted bond markets? Historically, political instability has caused governments to sell bonds to citizens in order to finance e.g. wars. As the return you get on a bond is highly related to the riskiness of the investment, the price of bonds would typically go down during periods of political instability, due to the decreased credibility of the government and the unwillingness among citizens to invest in bonds, causing the returns to be higher. Furthermore
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Kat Keiser is the president and principal stockholder of Kat's Kupcakery, Inc. The business is applying for a $100,000 bank loan for expansion. Keiser believes she is more likely to get approved for the loan if the business’s balance sheet looks good. She is considering the following options for improving the owner's equity of the business in order to obtain the loan: 1. Issue $50,000 of common stock in exchange for cash to a friend who is interested in investing in the company. This would increase
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