Problem 1: In most large corporations, ownership and management are separated. What are the main implications of this separation?
Problem 2: We can imagine the financial manager doing several things on behalf of the firm's stockholders. For example, the manager might:
a. Make shareholders as wealthy as possible by investing in real assets.
b. Modify the firm's investment plan to help shareholders achieve a particular time pattern of consumption.
c. Choose high- or low-risk assets to match shareholders' risk preferences.
d. Help balance shareholders' checkbooks.
But in well-functioning capital markets, shareholders will vote for only one of these goals. Which one? Why?
Problem 3:
A. The cost of an automobile is $10,000. If the interest rate is 5%, how much would you have to set aside now to provide this sum in five years?
B. You have to pay $12,000 a year in school fees at the end of each of the next six years. If the interest rate is 8%, how much do you set aside today to cover these bills?
C. You have invested $60,476 at 8%. After paying the above school fees, how much would you remain at the end of six years?
Problem 4: "What is the PV of $100 received in:
A. Year 10 (at a discount rate of 1%)
B. Year 10 (at a discount rate of 13%)
C. Year 15 (at a discount rate of 25%)
D. Each of years 1 through 3 (at a discount rate of 12%)?"
Problem 5: In February 2009 Treasury 6s of 2026 offered a semiannually compounded yield of 3.5985%. Recognizing that coupons are paid semiannually, calculate the bond's price.
Problem 6: Here are the prices of three bonds with 10-year maturities:
Bond Coupon (%) Price (%)
2 81.62
4 98.39
8 133.42
If coupons are paid annually, which bond offered the highest yield to maturity?
Which had the lowest?
Which bonds had the longest and shortest durations?