Economics Questions

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1. (Asymmetric Information) Define asymmetric information. Distinguish between hidden characteristics and hidden actions. Which type of asymmetric information contributes to the principal-agent problem?

 

2. (The Principal-Agent Problem) Discuss the nature of the principal-agent problem. Determine which is the principal and which is the agent in each of the following relationships:

 

a)     A-  A firm that produces export goods and the export management company that helps market its goods overseas

 

b)      B.- The management of a firm and its stockholders

 

3. (Securities Exchanges) What role do securities exchanges play in financing corporations?

 

4. Although the article is dated, please read Jane Katz, “Who Should Be in Charge,” in the Federal Reserve Bank of Boston’s Regional Review at http://www.bos.frb.org/economic/nerr/rr1997/fall/katz97_4.htm.  What are some of the issues in corporate finance as outlined by Katz? Do they hold true today? Briefly discuss.

 

5. (Corporate Finance) Describe the three ways in which corporations acquire funds for investment.

 

6. (Present Value of an Income Stream) Suppose the market interest rate is 10 percent. Would you be willing to lend $10,000 if you were guaranteed to receive $1,000 at the end of each of the next 12 years plus a $5,000 payment 15 years from now? Why or why not?

 

7. (Why Interest Rates Differ) At any given time, a range of interest rates prevails in the economy. What are some factors that contribute to differences among interest rates?

 

8. Do you think it is possible to predict the future price of stocks? Briefly discuss.

9. if you have $50,000 to invest in the financial markets. Which financial instrument do you prefer? Stocks? or Bonds? Why?

 

 

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