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1、CHAPTER 1: THE INVESTMENT ENVIRONMENT1-1CHAPTER 1: THE INVESTMENT ENVIRONMENTPROBLEM SETS1.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 po
2、rtfolios 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 p
3、otential 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-develo
4、ped 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 secu
5、rities 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 finan
6、cial services.4.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 fi
7、nancial 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.CHAPTER 1: THE INVESTMENT ENVIRONMENT1-25.Even if the firm does not need to issue stock in any particular year, the stock market is st
8、ill important to the financial manager. The stock price provides important information about how the market values the firms investment projects. For example, if the stock price rises considerably, managers might conclude that the market believes the firms future prospects are bright. This might be
9、a useful signal to the firm to proceed with an investment such as an expansion of the firms 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
10、willing to buy shares in a primary offering, and thus improves the terms on which firms can raise money 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
11、 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. (Lannis IOU is the banks financial ass
12、et.) The cash Lanni receives is a financial asset. The new financial asset created is Lannis promissory note (that is, Lannis 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 cr
13、eated 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 f
14、inancial 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 “destroyed“ in the transaction, since it is retired when paid off and no longer
15、 exists.CHAPTER 1: THE INVESTMENT ENVIRONMENT1-38.a.AssetsLiabilities which are financial assets for financial institutions.10.a. Primary-market transactionb. Derivative assetsc. Investors who wish to hold gold without the complication and cost of physical storage.CHAPTER 1: THE INVESTMENT ENVIRONME
16、NT1-411.a. A fixed salary means that compensation is (at least in the short run) independent of the firms success. This salary structure does not tie the managers immediate compensation to the success of the firm. However, the manager might view this as the safest compensation structure and therefore value it more highly.b. A salary that is paid in the form of stock in the firm means that the manager earns the
