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Answer Key In-class Exercise 3 Bond Valuation
Discounted cash flows Answer: F
. The market value of any real or financial asset, including stocks, bonds, or art work, may be found by determining future cash flows and then discounting them back to the present.
Call provision Answer: F
. A call provision... Continue reading "B6005 Financial Management" »
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Scarcity refers to the limited nature of society's resources. Economics is the study of how society manages its scarce resources.
Every decision involves tradeoffs. A significant tradeoff society faces is between:
Tradeoff Example: To achieve greater equality, income could be redistributed from the wealthy to the poor. However, this can reduce the incentive to work and produce, shrinking the overall economy.
Decision-making requires comparing the costs and benefits... Continue reading "Principles of Economics: A Comprehensive Guide" »
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By putting into action an effective monetary policy, the Federal Reserve and the US government could uphold stable prices, thus sustaining conditions for long-standing economic expansion as well as increased employment opportunities. This study will explain how open market operations, discount rate, and reserve requirements could be utilized in order to stimulate the American economy.
Open market operations (OMOs) refer to the buying and selling of securities by a central bank in the open market to execute monetary policy. OMOs could be utilized in adjusting the supply of reserve balances in order to uphold the federal funds rate... Continue reading "Monetary Policy Tools to Revive the US Economy" »
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There are several forms of business organizations, each with its own structure, advantages, and disadvantages. The choice of business organization affects factors like legal liability, taxation, management, and control. Here are the main forms of business organizations and their pros and cons:
A sole proprietorship is a business owned and operated by a single individual. It's the simplest form of business organization.
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The nature and scope of a business refer to the core characteristics and breadth of activities that define it. Here's how they are generally categorized:
Type of Business:
Industry:
Ownership Structure:
Business Objectives:
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Capital structure refers to how a company finances its operations and investments using different combinations of debt and equity. This structure significantly impacts the company's financial strength and profitability.
Simply put, a company can finance itself through debt (loans, bonds, etc.) or equity (stocks). The choice between these two types of financing determines the capital structure.
Debt involves borrowing money that must be repaid with interest. This can increase financial risk if the debt cannot be repaid, but it can also offer tax benefits due to the deductibility of interest.
Equity, on the other hand, involves financing the company by issuing and selling shares. This does not require interest payments, but it dilutes... Continue reading "Corporate Capital Structure and Pension Planning" »
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Consumer Preferences: The fact that a consumer prefers one good to another.
Budget Constraints: A consumer has limited resources (income) to consume a restricted quantity of goods.
Consumer's Choice: Given their preferences and budget constraints, they will choose the optimal consumption bundle of goods/services to maximize their 'satisfaction'. (Marginal Utility = Marginal Cost)
Completeness: Implies that consumers can compare and rank all possible market baskets. A>B, A<B, or A=B
Transitivity: If a consumer prefers A>B, and B>C, then they must prefer A>C. (A>B>C)
Non-satiation: Consumers are never satisfied; the more, the better.
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What is the significance of economic planning for a developing country?
Barbara Wooton defines economic planning as "a system in which the market mechanism is deliberately manipulated with the object of producing a pattern other than that which would have resulted from its spontaneous activity."
Economic planning ensures optimal use of economic and human resources for national benefit. It increases output based on national priorities and reduces resource wastage.
Capital formation is crucial in economic planning. Planned economies prioritize future growth over immediate needs, fostering rapid economic development.
Economic... Continue reading "Economic Planning: Vital for Developing Nations" »
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A sole proprietorship is a business structure where an individual owns and operates the business. The owner contributes the capital, manages operations, and is solely responsible for the business's outcomes. They may work alone or employ others. This structure is the easiest to form and simplest to organize. The sole proprietor can borrow funds or utilize others' money for business purposes.
Forming a sole proprietorship is easier than partnerships or corporations. There are no legal formalities like agreements, memorandums of association, or articles of association.
Dissolving a sole proprietorship is simple, as the owner doesn't need permission from shareholders... Continue reading "Sole Proprietorship: Advantages, Disadvantages, and Characteristics" »
