14 Apr Focus?on general finance questions based upon readings from Chapters 1 and 6 of?your textbook. In this assessment, you will explore various aspects
- Focus on general finance questions based upon readings from Chapters 1 and 6 of your textbook.
In this assessment, you will explore various aspects of the business environment, including the role of financial managers. Financial managers are known as the agents of company owners (stockholders) who are tasked with achieving the goal of maximizing shareholder wealth using tools of financial markets. You also receive an introduction to the various types of financial markets and the relationships between interest rates and other economic variables.
Introduction
This assessment focuses on general finance questions based upon readings from Chapters 1 and 6 of your textbook.
Instructions
Complete and submit the Assessment 1 Template [DOCX].
Use references to support your answers as needed. Be sure to cite all references using correct APA style. Your responses should be free of grammar and spelling errors, demonstrating strong written communication skills.
Competencies Measured
By successfully completing this assessment, you will demonstrate your proficiency in the course competencies through the following assessment scoring guide criteria:
- Competency 1: Analyze financial environments and concepts.
- Evaluate ethical nature of an insider trading case.
- Explain why wealth maximization is more desirable than profit maximization as a goal for any company.
- Classify four market transaction types correctly.
- Classify 5–7 market securities correctly.
- Explain the shape of the yield curve with respect to the unbiased expectations and liquidity premium theories.
- Competency 2: Apply financial computations and processes.
- Calculate the correct equilibrium rate of return for a security.
- Competency 3: Communicate effectively and professionally.
- Convey clear meaning through appropriate word choice and usage.
- Competency 1: Analyze financial environments and concepts.
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Week 1 Assignment Template
Respond to the following questions using grammatically correct language.
1. Martha Stewart was accused of insider trading for selling ImClone stocks a day before the stock went down in value. The charges of securities fraud were thrown out but she served 5 months in prison for obstruction of justice and lying to investigators. Do you think what Martha did (insider trading) was unethical from financial management point of view? Explain.
[Answer here.]
2. Explain why wealth maximization is more desirable than profit maximization as a goal for any company.
[Answer here.]
3. Classify the following transactions as taking place in the primary or secondary markets by placing an “X” in the appropriate cells for questions 3 and 4.
Markets
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Transactions |
Primary Market |
Secondary Market |
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IBM issues 200 million dollars of new common stock. |
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The New Company issues 50 million dollars of common stock in an IPO. |
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IBM sells 5 million dollars of GM preferred stock from its marketable securities portfolio. |
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The Magellan Fund buys 100 million dollars of previously issued IBM bonds. |
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Prudential Insurance Co. sells 10 million dollars of GM common stock. |
4. Classify the following financial instruments as money market securities or capital market securities:
Financial Instruments
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Transactions |
Money Market |
Capital Market |
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Federal Funds. |
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Common Stock. |
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Corporate Bonds. |
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Mortgages. |
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Negotiable Certificates of Deposit. |
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U.S. Treasury Bills. |
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U.S. Treasury Notes. |
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U.S. Treasury Bonds. |
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State and Government Bonds. |
5. Explain the shape of the yield curve with respect to the unbiased expectations and liquidity premium theories.
[Answer here.]
6. Imagine a particular security’s default risk premium is 2 percent. For all securities, the inflation risk premium is 1.75 percent and the real risk-free rate is 3.50 percent. The security’s liquidity risk premium is 0.25 percent and maturity risk premium is 0.85 percent. The security has no special covenants. Calculate the security’s equilibrium rate of return. Show your work.
[Answer here; show your work.]
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