Finance Course Week 1 Homework

Module 1
Homework Assignment

Notes:Work should be done individually.Word-process your solutions
within this template and show all steps used in arriving at the final answers.
Incomplete solutions will receive partial credit. Copy and paste all necessary data
and create tables as needed.
1.
Discuss the three forms of business organization in the United States.

2.
Suppose the real risk-free rate, r*, is 2% and investors expect
inflation to be 4% next year, 5% the following year, and 7% per year thereafter.
Assume the MRP is zero for Year 1 and increases by 0.1% each year. Compute the
quoted, or risk-free, rate of return for Year 8.

3.
What is a firm’s fundamental or intrinsic value? What might cause a
firm’s intrinsic value to be different than its actual market value?

4.
Which of the following would be most likely to lead to higher
interest rates on all debt securities in the economy?
a.
Households start saving a larger percentage of their income.
b.
The economy moves from a boom to a recession.
c.
The level of inflation begins to decline.
d.
Corporations step up their expansion plans and thus increase their
demand for capital.
e.
The Federal Reserve uses monetary policy in an attempt to stimulate
the economy.

5.
The most widely accepted objective of the firm is to
a.
minimize risk
b.
maximize profits
c.
maximize shareholder wealth
d.
maximize earnings per share

6.
Who was responsible for the financial crisis of 2007-2009?
a.
The U.S. Federal Reserve, for its policy of easy money.
b.
The U.S. government, for pushing banks to expand credit
for low-income housing
c.
Bankers, who aggressively promoted and resold subprime
mortgages
d.
All of these

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