Chapter 1 notes by mohammed PDF

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Chapter1. 2. primary asset: an asset that has a claim on the real estate of a firm derivative asset: an asset that provides payoffs 3. asset allocation: allocation of an investment portfolio across broad asset classes security selection: choice of securities within an asset 4. The main agency problem is the conflict between mangers and shareholders. Stakeholders are looking to increase the price of the shares, and managers are looking to increase income. To solve this issue, the firm could offer some shares to the mangers which will align both of their interests. 5. real assets: assets that are used to produce goods and services financial assets: nonphysical assets that have a contractual value. 13. The nation wealth of an economy consists only of real assets. Moreover, the financial assets are not considered within the nation of wealth of an economy because the assets held by an individual are the liabilities for the issuer, so the effect cancels out to be a zero. These assets matter because they help the economy in productive activities. 14. a) advantages: managers will look for a long-run growth of the economy without conflict disadvantages: managers aren’t motivated to take risks for growth b) advantages: managers will be focused on the growth of the firm disadvantages: managers will feel overburdened by the risk of success c) advantages: managers will be motivated to work to get paid well disadvantages: managers will be willing to cook the books for more income 17. - because it needs potential investors - because they need brokers, investment bankers, financial institutions 20. no, secondary markets securities are very important for financial mangers because the prices of stock can indicate the financial position of a company and the amount the company can expect to earn from an investment 21. risk averse investors prefer T-bills because they are considered safe because they are owned by the government...