1.What is meant by limited liability? 2.Why do most professionals consider the Wilshire 5000 a better...

1.What is meant by limited liability?

2.Why do most professionals consider the Wilshire 5000 a better index of the performance of the broad stock market than the Dow Jones Industrial Average?

3.What options position is associated with the right to buy an asset at a specified price?

Please answer them fully

Solutions

Expert Solution

Q - 1

Limited liability means that the shareholders of the company ave limited liability towards the obligations of the company. And their limited liability is limited to the original capital invested by the shareholders. In the event of default or company turning bankrupt, the shareholders can't be held liable to reimburse and make good the obligations towards the creditors and lenders. In such cases, the worst is to lose their invested capital.

Q - 2

Most professionals consider the Wilshire 5000 a better index of the performance of the broad stock market than the Dow Jones Industrial Average (DJIA) because:

DJIA is not broad based. It has just 30 corporations in itself.
Wilshire is more broad based. It has more than 5,000 stocks in the index.
DJIA, because of limited base, is not a proper representation of the state of economy, while Wilshore with a base of more than 5,000 stocks represents the state of economy more adequately and comprehensively

Q - 3

Call options: They represent the right but not an obligation to buy the asset at a pre determined price.

jeff jeffy answered 4 months ago

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