1. The U.S. financial system is composed of: (1) policy makers, (2) a monetary system, (3) financial institutions, and (4) financial markets. Indicate which of these components is associated with each of the following roles:
a. accumulate and lend/invest savings
b. create and transfer money
c. pass laws and set fiscal and monetary policies
d. market and facilitate transfer of financial assets
2. Financial markets may be categorized as: (1) debt securities markets, (2) equity securities markets, (3) derivative securities markets, and (4) foreign exchange markets. Indicate in which of these markets the following securities trade:
a. residential mortgages
b. corporate bonds
c. corporate stocks
d. currencies
3. In business, ethical dilemmas or situations occur frequently. Laws and regulations exist to define what unethical behavior is. However, the practicing of high-quality ethical behavior often goes beyond just meeting laws and regulations. Indicate how you would respond to the following situations.
a. Your boss has just told you that tomorrow the Federal Drug Administration will announce its approval of your firm's marketing of a new breakthrough drug. As a result of this information, you are considering purchasing shares of stock in your firm this afternoon. What would you do?
b. In the past, your firm has been in compliance with regulatory standards relating to product safety. However, you have heard through the company grapevine that recently some of your firm's products have failed resulting in injuries to customers. You are considering quitting your job due to personal moral concerns. What would you do?
1. Determine the size of the M1 money supply using the following information.
Currency $700 billion
Money market mutual funds $2,000 billion
Demand deposits $300 billion
Other checkable deposits $300 billion
Traveler's checks $10 billion
2. The following information is available to you: travelers' checks
$1 million; coin and paper currency
$30 million; repurchase agreements and Eurodollars
$15 million; demand deposits $25 million; retail money market mutual funds
$60 million; savings accounts at depository institutions
$40 million; checkable deposits at depository institutions
$35 million; large-denomination time deposits
$50 million; institutional money market mutual funds
$65 million; and small-denomination time deposits
$45 million. Using Fed definitions, determine the dollar sizes of the
a. M1 money supply
b. M2 money supply
c. M3 money supply
3. Assume that the real output (RO) for a country is expected to be 2.4 million products.
a. If the price level (PL) is $250 per product, what will be the amount of the gross national product (GDP)?
b. Now assume that the GDP is projected to be $8 million next year. What will the PL of the products need to be to reach the GDP target?
c. Now assume that the RO of 2.4 million products is composed of equal amounts of two types of products. The first product sells for $100 each, and the second product sells for $500 each. What will be the size of the GDP?
FIN 100 QUESTION
1. Suppose that a security costs $1,500 today.
A. Calculate the percentage return on the security if the payoff to the security in one year is $1,000, $1,500, $2,000, or $2,500. (Note: This is the total amount returned to the investor, so you may just calculate the total return and not worry about how this is split up between current yield and capital-gains yield.)
B. If each of the outcomes in part a is equally likely, calculate the expected return on the security.
C. Calculate the standard deviation of the return on the security. (Again, assume that each of the outcomes in part a is equally likely.)
2. Suppose that a security costs $3,000 today and pays off some amount b in one year. Suppose that b is uncertain according to the following table of probabilities:
b: $3,000 $3,300 $3,600 $3,900 $4,200
Probability: 0.1 0.2 0.3 0.2 0.2
A. Calculate the return (in percent) for each value of b. (Note: You may just calculate the total return and not worry about how this is split between current yield and capital-gains yield.)
B. Calculate the expected return (in percent).
C. Calculate the standard deviation of the return.
D. Suppose that an investor has a choice between buying this security or purchasing a different security that also costs $3,000 today but pays off $3,300 with certainty in one year.
How is an investor's choice of which security to purchase related to his degree of risk aversion?