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Fundamentals of Corporate Finance 8th Edition Brealey Solutions Manual

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Fundamentals of Corporate Finance 8th Edition Brealey Solutions Manual Full clear download( no error formatting) at: fundamentals of corporate finance 8th edition pdf download fundamentals of corporate finance 8th edition brealey pdf fundamentals of corporate finance 8th edition mcgraw hill fundamentals of corporate finance 7th edition brealey pdf fundamentals of corporate finance brealey fundamentals of corporate finance 8th edition ebook fundamentals of corporate finance amazon fundamentals of corporate finance brealey amazon
  2-1 Fundamentals of Corporate Finance 8th Edition Brealey Solutions Manual Full clear download( no error formatting) at: Fundamentals of Corporate Finance 8th Edition Brealey Test Bank  Full clear download( no error formatting) at:  Solutions to Chapter 2   Financial Markets and Institutions  1. The story of Apple Computer provides three examples of financing sources: equity investments by the founders of the company, trade credit from suppliers, and investments by venture capitalists. Other sources include reinvested earnings of the company and loans from banks and other financial institutions.  Est time: 01  –  05    Raising capital   2.  Money markets: where short-term debt instruments are bought and sold.  Foreign-exchange markets: where currencies are traded; most trading takes place in over- the-counter transactions between the major international banks. Commodities markets: where agricultural commodities, fuels (including crude oil and natural gas), and metals (such as gold, silver, and platinum) are traded.  Derivatives markets: where options and other derivative instruments are traded.  Est time: 01  –  05   Capital markets  3. a.  b. c. False. Financing could flow through an intermediary, for example. False. Investors can buy shares in a private corporation, for example. False. There is no centralized FOREX exchange. Foreign exchange trading takes  place in the over-the-counter market. d. False. Derivative markets are not sources of financing, but markets where the financial manager can adjust the fir  m’s exposure to various business risks. e. False. The opportunity cost of capital is the expected rate of return that shareholders can earn in the financial markets on investments with the same risk as the f  irm’s capital investments.  2-2 f. False. The cost of capital is an opportunity cost determined by expected rates of return in the financial markets. The opportunity cost of capital for risky investments is normally higher than the f  irm’s b orrowing rate.  Est time: 06   –  10    Raising capital   4. a. Investor A buys shares in a mutual fund, which buys part of a new stock issue  by a rapidly growing software company.  b. Investor B buys shares issued by the Bank of New York, which lends money to a regional department store chain.  2-3 c. Investor C buys part of a new stock issue by the Regional Life Insurance Company, which invests in corporate bonds issued by Neighborhood Refineries, Inc.  Est time: 01  –  05   Types of financial institutions  5. Buy shares in a mutual fund. Mutual funds pool savings from many individual investors and then invest in a diversified portfolio of securities. Each individual investor then owns a proportionate share of the mutual f  und’s po rtfolio.  Est time: 01  –  05    Financial institution functions  6. Yes, an insurance company is a financial intermediary. Insurance companies sell  policies and then invest part of the proceeds in corporate bonds and stocks and in direct loans to corporations. The returns from these investments help pay for losses incurred by policyholders.  Est time: 01  –  05    Financial institution functions  7. a. Equities. As a percentage of all investors, households are the largest investor in equities.  b. Pension funds. Banks own almost no corporate equities, but instead rely on fixed- income investments. c. Commercial banks. In contrast, investment banks raise money for corporations.  Est time: 06   –  10    Financial institutions  8. NASDAQ and The Chicago Mercantile Exchange are financial markets.  Est time: 01  –  05    Financial institutions  9. a. False. Exchange traded funds (ETFs) are portfolios of stocks that can be bought or sold in a single trade.  b. False. Hedge funds may provide diversification, but usually have very high fees. c. True. Insurance policy premiums are used to pay claims, create reserves and provide financing for company operations. d. True. The size of the pension investment is variable, depending on market conditions, while the amount contributed is somewhat fixed.  Est time: 06-10    Financial institution functions  2-4 10. Liquidity is important because investors want to be able to convert their investments into cash quickly and easily when it becomes necessary or desirable to do so. Should personal circumstances or investment considerations lead an investor to conclude that it is desirable to sell a particular investment, the investor prefers to be able to sell the investment quickly and at a price that does not require a significant discount from market value. Liquidity is also important to mutual funds. When the mutual fund ’ s shareholders want to redeem their shares, the mutual fund is often forced to sell its securities. In order to maintain liquidity for its shareholders, the mutual fund requires liquid securities.  Est time: 01  –  05    Liquidity  11. The key to the bank  ’s ability to provide liquidity to depositors is the ba nk’s  ability to pool relatively small deposits from many investors into large, illiquid loans to corporate borrowers. A withdrawal by any one depositor can be satisfied from any of a number of sources, including new deposits, repayments of other loans made by the bank, bank reserves, and the ba nk’s debt and equity financing.  Est time: 01  –  05    Financial institution functions  12. Commercial banks accept deposits and provide financing primarily for businesses. Investment banks do not accept deposits and do not loan money to businesses and individuals. Investment banks may make bridge loans as temporary financing for a takeover or acquisition. In addition, investment banks trade many different financial contracts, such as bonds and options, while providing investment advice and portfolio management for institutional and individual investors.  Est time: 01  –  05    Financial institution functions  13. Mutual funds collect money from small investors and invest the money in corporate stocks or bonds, thus channeling savings from investors to corporations. For individuals, the advantages of mutual funds are diversification, professional investment management, and record keeping.  Est time: 01  –  05    Money and capital markets  14. Financial markets and financial intermediaries channel savings to real investments. They also channel money from individuals who want to save for the future to those who need cash to spend today. A third function of financial markets is to allow individuals and  businesses to adjust their risk. For example, mutual funds, such as the Vanguard Index fund, and ETFs, such as the SP DR’s or    “ spiders ,”  allow individuals to spread their risk across a large number of stocks. Financial markets provide other mechanisms for sharing risks. For example, a wheat farmer and a baker may use the commodity markets to reduce their exposure to wheat prices. Financial markets and intermediaries allow investors to turn an investment into cash when needed. For example, the shares of public companies are
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