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In: Finance

Which of the following statements is CORRECT? a. Only institutions, and not individuals, can engage in...

Which of the following statements is CORRECT?

a. Only institutions, and not individuals, can engage in derivative market transactions.
b. As they are generally defined, money market transactions involve debt securities with maturities of less than one year.
c. If Disney issues additional shares of common stock through an investment banker, this would be a secondary market transaction.
d. If you purchase 100 shares of Disney stock from your brother-in-law, this is an example of a primary market transaction.
e. The NYSE is an example of an over-the-counter market.

Solutions

Expert Solution

1. Option B. As they are generally defined, money market transactions involve debt securities with maturities
of less than one year.

2. Option A. EVA stands for economic value added and it is defined as follows: EVA = NOPAT - (total invested capital)(AT cost of capital %)

3. Option E. The New York Stock Exchange is an auction market, and it has a physical location.

4. Option B. If someone deliberately understates costs and thereby causes reported profits to increase, this can cause the stock price to rise above its intrinsic value. The stock will probably fall in the future. Both those who participated in the fraud and the firm itself can be prosecuted.

5. Option E. One way to increase EVA is to generate the same level of operating income but with less investor-supplied capital

6. Option D. The balance sheet gives us a picture of the firm's financial position at a point in time

7. Option D. the NYSE is an auction market, and it has a physical location

jeff jeffy answered 1 year ago
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