1. Explain why total financial assets in the economy must equal total financial liabilities
2. What are two basic services that investment banks provide in the economy?
3. When determining the real interest rate, what happens to businesses that find themselves with unfunded capital projects whose rate of return exceeds the cost of capital?
4. Trader Inc. is a $300 million company, as measured by asset value, and horst Corp. is a $35 million company. Both are privately held corporations. Explain which firm is more likely to go public and register with the SEC, and why.
5. What does it mean to "underwrite" a new security issue? What compensation does an investment banker get from underwriting a security issue?
6. Identify whether the following transactions are primary market or secondary market transactions:
a. Singh Holland bought 300 shares of IBM through his brokerage account
b. Haruka Jones bought $5,000 of General Motors bonds from another investor
c. Elizabeth & Associates Company bought 500,000 shares of Porsche Corp. When the company issued stock
7. What is the Fisher equation, and how is it used?
8. What are the two risk-hedging instruments discussed in this chapter? What is ‘risk hedging'?