Background: A few years ago, companies such as AIG, who had a hand in the cause of the economic downturn that has devastated our economy, were planning to give or actually gave out huge golden parachutes to the same executives who led and approved of the companies actions.

Instructions: Please answer the questions below:

1) Perform a search of a CEO who has received a golden parachute.

1a) Who was the CEO?

1b) What was the company from where he or she received the golden parachute?

1c) What was the total compensation in the golden parachute?

1d) What happened to the company after the CEO's departure terms of before and after revenue?

1e) After the CEO's departure, did the former CEO obtain a leadership position at another firm? If yes, what company.

2) Based on your reading of Chapter 10 of your DLR e-text, do you believe the payment of these golden parachutes was ethical, right or wrong, and why? Please be substantive in your answers.

A sophisticated economic model of unemployment predicts that if welfare is reduced by 20%, the proportion of unemployed people should decrease by 6 percentage points. We want to test this prediction based on data collected prior and after a welfare reform that reduced welfare by 20%: We have a sample of n1 = 2524 randomly selected people, of which 425 are unemployed, collected before welfare reform, and we have a sample of n2 = 1278 randomly selected people, of which 161 people are unemployed, collected after welfare reform. Denote by p1 the unemployment rate in the population prior to welfare reform, and let p2 the unemployment rate (in the population) after welfare reform.

(a) State the implication of the economic theory as a hypothesis about the relationship between p1 and p2.

(b) Find a test statistic whose distribution under the null hypothesis is (approximately) standard normal.

(c) Can you reject the validity of the economic theory on 5% level against a two-sided alternative?

a) A physical education director claims by taking a special vitamin, a weight lifter can

increase his strength. Eight athletes are selected and given a test of strength, using the standard bench press. After two weeks of regular training, supplemented with the vitamin, they are tested again. Test the vitamin regimen is effective in increasing strength at the .05 level of significance. Each value in the data that follow represents the maximum number of pounds the athlete can bench press. Assume both populations normal.

athlete 1 2 3 4 5 6 7 8Before 210 230 182 205 262 253 219 216

after 219 236 179 204 270 250 222 216

claim .................................................... null hypothesis........................................ alternative hypothesis................................ Calculator Screen Name........................... test statistic .............................. pvalue/alpha comparison............................ decision ............................... Conclusion ...............................

b) Construct a 95% confidence interval for, ?d , the mean difference of the before minus the after times. Interpret the interval in a complete sentence.

Confidence Interval Name__________________________________ Interval___________________________________________ Interpret_____________________________________________

Loaded-Up Fund charges a 12b-1 fee of 1% and maintains an expense ratio of 0.70%. Economy Fund charges a front-end load of 2%, but has no 12b-1 fee and an expense ratio of 0.30%. Assume the rate of return on both funds’ portfolios (before any fees) is 7% per year.

a. How much will an investment of $100 in each fund grow to after 1 year? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

b. How much will an investment of $100 in each fund grow to after 4 years? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

c. How much will an investment of $100 in each fund grow to after 13 years? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

A newly issued bond pays its coupons once annually. Its coupon rate is 9.2%, its maturity is 20 years, and its yield to maturity is 11%.

a. Find the realized compound yield before taxes for a 2-year holding period, assuming that (i) you sell the bond after two years, (ii) the bond yield is 10% at the end of the second year, and (iii) the coupon can be reinvested for one year at a 3% interest rate. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b. If you sell the bond after one year, the tax rate on interest income is 40% and the tax rate on capital gains income is 30%. The bond is subject to original-issue discount tax treatment. Compute the after-tax 2-year realized compound yield. Remember to take account of OID tax rules. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Mr. H issues a 15 year mortgage of $275,000 at an annual interest rate of 3.6% to buy a house.The mortgage payments are made annually.

1.What is Mr. H's annual payment of principal and interest?

2.How much interest does Mr. H pay in the second year of the mortgage?

3.Suppose that immediately after making the second annual payment, Mr. H has the opportunity to refinance the remaining mortgage balance at an annual rate of 2.6% for the remaining period of 13 years. What is the largest lump sum refinancing payment that he would be willing to make today to secure the lower cost financing? Assume that he continues to make annual payments on the new mortgage.

4.Using the information from the refinancing question and assuming that Mr. H refinanced his mortgage at the lower rate after making two annual payments, how much is his remaining mortgage balance after making 9 of the lower annual payments in addition to the first two made before refinancing?

Loaded-Up Fund charges a 12b-1 fee of 1% and maintains an expense ratio of 0.75%. Economy Fund charges a front-end load of 2%, but has no 12b-1 fee and an expense ratio of 0.25%. Assume the rate of return on both funds’ portfolios (before any fees) is 6% per year.

a. How much will an investment of $100 in each fund grow to after 1 year? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Loaded up fund?
Economy fund?

b. How much will an investment of $100 in each fund grow to after 3 years? (Do not round intermediate calculations. Round your answers to 2 decimal places.

Loaded up fund?
Economy fund?

c. How much will an investment of $100 in each fund grow to after 10 years? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Loaded up fund?
Economy fund?

The Smith Company currently has 25,000 shares of common stock outstanding. The stock has a par value of $6 per share and a market value of $26 per share – in other words, the price of the stock if you want to buy it is $26 per share.

Please make the journal entry required if the company gives the stockholders an 8% stock dividend.

Please make the journal entry required if the company gives the stockholders a 40% stock dividend instead of an 8% stock dividend.

Suppose that instead of giving the stockholders a stock dividend the company decides to do a 3-for-1 stock split.

Is a journal entry needed for a stock split?

What is the balance of the Common Stock account before the stock split?

How many shares of common stock would there be after the stock split?

What would the par value per share be after the stock split?

What is the balance of the Common Stock account after the stock split?

Did the stock split change the balance of the Common stock account?

The Smith Company currently has 25,000 shares of common stock outstanding. The stock has a par value of $6 per share and a market value of $26 per share – in other words, the price of the stock if you want to buy it is $26 per share.

Please make the journal entry required if the company gives the stockholders an 8% stock dividend.
Please make the journal entry required if the company gives the stockholders a 40% stock dividend instead of an 8% stock dividend.
Suppose that instead of giving the stockholders a stock dividend the company decides to do a 3-for-1 stock split.
Is a journal entry needed for a stock split?
What is the balance of the Common Stock account before the stock split?
How many shares of common stock would there be after the stock split?
What would the par value per share be after the stock split?
What is the balance of the Common Stock account after the stock split?
Did the stock split change the balance of the Common stock account?

company currently has 150k shares outstanding, selling at $64 per share. The firm intends to raise $565k through a rights offering. Management suggests that a discount cannot fall below 11% as outlined in the previous issue, to which existing shareholders did not respond with much enthusiasm. They believe that a 37% discount offer is more appropriate. Also, the CEO is rejecting calls for raising capital through debt or preferred stock.
Net earnings after taxes (EAT) are $649k. Furthermore, a recent corruption scandal involving a number of senior figures in the firm has come to light in the press; soon after the rights offering was announced – in other words, it was already too late. Among the immediate consequences were a fall in stock price by 17.09% and increased capital requirements by 62%. Required: In percentage terms, determine by how much did the dollar value of one right change before and after the consequences described above, together with the 37% discount offer which was simultaneously taking place. Answer