1. Which specific asymmetric information problem do credit-rating agencies help to reduce in the bond market? Explain the effect of subprime mortgage crisis on the trust worthiness of these agencies on the quality of information.
2. To what extent can firms set their own credit policies as opposed to accepting policies that are dictated by their competitors?
3. Calculating Rate of Return. Assume that at the beginning of the year, you purchase an investment for $4,900 that pays $105 annual income. Also assume the investment’s value has increased to $6,300 by the end of the year. a. What is the rate of return for this investment? b. Is the rate of return a positive or negative number?