CHAPTER 1: THE INVESTMENT ENVIRONMENT
CHAPTER 1: THE INVESTMENT ENVIRONMENT
PROBLEM SETS 1. Ultimately, it is true that real assets determine the material well being of an
economy. Nevertheless, individuals can benefit when financial engineering creates new products that allow them to manage their portfolios of financial assets more efficiently. Because bundling and unbundling creates financial products with new properties and sensitivities to various sources of risk, it allows investors to hedge particular sources of risk more efficiently. 2. Securitization requires access to a large number of potential investors. To attract
these investors, the capital market needs:
1. a safe system of business laws and low probability of confiscatory taxation/regulation;
2. a well-developed investment banking industry;
3. a well-developed system of brokerage and financial transactions, and; 4. well-developed media, particularly financial reporting.
These characteristics are found in (indeed make for) a well-developed financial market. 3.
Securitization leads to disintermediation; that is, securitization provides a means for market participants to bypass intermediaries. For example, mortgage-backed securities channel funds to the housing market without requiring that banks or thrift institutions make loans from their own portfolios. As securitization progresses, financial intermediaries must increase other activities such as providing short-term liquidity to consumers and small business, and financial services.
Financial assets make it easy for large firms to raise the capital needed to finance their investments in real assets. If Ford, for example, could not issue stocks or bonds to the general public, it would have a far more difficult time raising capital. Contraction of the supply of financial assets would make financing more difficult, thereby increasing the cost of capital. A higher cost of capital results in less investment and lower real growth.
4.
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CHAPTER 1: THE INVESTMENT ENVIRONMENT
5.
Even if the firm does not need to issue stock in any particular year, the stock market is still important to the financial manager. The stock price provides important
information about how the market values the firm's investment projects. For example, if the stock price rises considerably, managers might conclude that the market believes the firm's future prospects are bright. This might be a useful signal to the firm to proceed with an investment such as an expansion of the firm's business. In addition, shares that can be traded in the secondary market are more attractive to initial investors since they know that they will be able to sell their shares. This in turn makes investors more willing to buy shares in a primary offering, and thus improves the terms on which firms can raise mone y in the equity market.
6.
a. No. The increase in price did not add to the productive capacity of the economy.
b. Yes, the value of the equity held in these assets has increased.
c. Future homeowners as a whole are worse off, since mortgage liabilities have also increased. In addition, this housing price bubble will eventually burst and society as a whole (and most likely taxpayers) will endure the damage.
7.
a. The bank loan is a financial liability for Lanni. (Lanni's IOU is the bank's financial asset.) The cash Lanni receives is a financial asset. The new financial asset created is Lanni's promissory note (that is, Lanni’s IOU to the bank). b. Lanni transfers financial assets (cash) to the software developers. In return, Lanni gets a real asset, the completed software. No financial assets are created or destroyed; cash is simply transferred from one party to another.
c. Lanni gives the real asset (the software) to Microsoft in exchange for a financial asset, 1,500 shares of Microsoft stock. If Microsoft issues new shares in order to pay Lanni, then this would represent the creation of new financial assets.
d. Lanni exchanges one financial asset (1,500 shares of stock) for another
($120,000). Lanni gives a financial asset ($50,000 cash) to the bank and gets back another financial asset (its IOU). The loan is \is retired when paid off and no longer exists.
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CHAPTER 1: THE INVESTMENT ENVIRONMENT
8. a.
Liabilities & Shareholders’ equity
Cash $ 70,000 Bank loan $ 50,000 Computers 30,000 Shareholders’ equity 50,000 Total $100,000 Total $100,000 Ratio of real assets to total assets = $30,000/$100,000 = 0.30
Assets
b.
Assets
Software product* Computers Total *Valued at cost
Ratio of real assets to total assets = $100,000/$100,000 = 1.0
c.
Assets
Microsoft shares Computers Total
Liabilities & Shareholders’ equity
$120,000 Bank loan $ 50,000 30,000 Shareholders’ equity 100,000 $150,000 Total $150,000
Liabilities &
Shareholders’ equity
$ 70,000 Bank loan $ 50,000 30,000 Shareholders’ equity 50,000 $100,000 Total $100,000
Ratio of real assets to total assets = $30,000/$150,000 = 0.20
Conclusion: when the firm starts up and raises working capital, it is characterized by
a low ratio of real assets to total assets. When it is in full production, it has a high ratio of real assets to total assets. When the project \off for cash, financial assets once again replace real assets. 9.
For commercial banks, the ratio is: $140.1/$11,895.1 = 0.0118 For non-financial firms, the ratio is: $12,538/$26,572 = 0.4719
The difference should be expected primarily because the bulk of the
business of financial institutions is to make loans; which are financial assets for financial institutions.
10. a. Primary-market transaction b. Derivative assets c. Investors who wish to hold gold without the complication and cost of
physical storage.
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博迪投资学第10版英文教材课后答案 (1)
