Managerial Analysis/Fianace

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Instructions

Instructions
NAME:
To complete the homework assignments in the templates provided:
1. The question is provided for each problem. You may need to refer to your textbook for additional information in a few cases.
2. You will enter the required information into the shaded cells.
3. The cells are coded:
a) T requires a text answer. Essay questions require references; use the textbook.
b) C requires a calculation, using Excel formulas or functions. You cannot perform the operation on a calculator and then type the answer in the cell. You will enter the calculation in the cell, and only the final answer will show in the cell. I will be able to review your calculation and correct, if necessary.
c) F requires a number only. In some problems, a “Step 1” is added to help you solve the problem.
d) Formula requires a written formula, not the numbers. For example, the rate of return = [(1 + nominal)/ (1+inflation)]-1, or D (debt) + E (equity) = V (value).
4. Name your assignment file as "LastnameFirstinitial-BUSN602-Week#", and submit by midnight ET, Day 7.

DQ1-8

Discussion Question 1-8.
What are the six principles of finance?
Answer:
Money has a time value
Diversification of investments can reduce risk Diversification of investments can reduce risk.
Higher returns are expected for taking on more risk.
Financial markets are efficient in pricing securities.
Managers and stockholder objectives may differ.
Reputation matters

DQ1-9

Discussion Question 1-9
Describe what is meant by ethical behavior.
Answer:
Ethical behavior is how an individual or organization treats others legally, failry, and honestly.

DQ1-10

Discussion Question 1-10
What are the basic requirements of an effective financial system?
Answers:
The basic requirements of a an effective fanancial system is having a set of policy makers who pass laws and make decisions relating to fiscal and monetary policies. These policy makers includes the president, Congress, the I.S. Treasury, and the Federal Reserve Board. An effective financial system also includes an efficient monetary system which is composed of a central bank and a banking system able to create and transfer a stable medium of exchange called money.

DQ1-12

Discussion Question 1-12
Briefly describe the differences between money and capital markets.
Answers:
Money market maatures within a year or less with high liquidity, and Capital market incorporate stocks with maturities longer than one year.

E1-2

Exercise 1-2
E1-2. The U.S. financial system is comprised of: (1) policy makers, (2) a monetary system, (3) financial institutions, and (4) financial markets. Indicate which of these components is associated with each of the following “roles”: a. accumulate and lend/invest savings b. create and transfer money c. pass laws and set fiscal and monetary policies d. market and facilitate transfer of financial assets
Answers:
Enter the number in blue shaded cells
A. Accumulate and lend/invest savings 3
B. Create and transfer money 2
C. Pass laws and set fiscal and monetary policies 1
D. Market and facilitate transfer of financial assets 4

DQ2-7

Discussion Question 2-7
Define money and indicate the basic functions of money.
Answer:
Money is described as what makes the financial system work. It is a measure of wealth and can be used to purchase goods and service and is acceptable to repay debts.

P2-8

Problem 2-8
Assume that a country estimates its M1 money supply at $20 million. A broader measure of the money supply, M2, is $50 million. The country’s gross domestic product (GDP) is $100 million. Production or real output for the country is 500,000 units or products. a. Determine the velocity of money based on the M1 money supply. b. Determine the velocity of money based on the M2 money supply. c. Determine the average price for the real output.
Answer:
Enter the answers in blue shaded cells
Formula (in words) Calculation
a. Velocity of money based on the M1 money supply. C
b. Velocity of money based on the M2 money supply. T C
c. Average price for the real output. T C

DQ3-1

Discussion Question 3-1
DQ3-1 Discuss how and why banks suffered financial difficulties during the financial crisis.
Answer:
T

P3-5

Problem 3-5
Following are selected balance sheet accounts for the Third State Bank: vault cash = $2 million; U.S. government securities = $5 million; demand deposits = $13 million; nontransactional accounts = $20 million; cash items in process of collection = $4 million; loans to individuals = $7 million; loans secured by real estate = $9 million; federal funds purchased = $4 million; and bank premises = $11 million. a. From these accounts, select only the asset accounts and calculate the bank’s total assets. b. Calculate the total liabilities for the Third State Bank. c. Based on the totals for assets and liabilities, determine the amount in the owners’ capital account.
Answer:
Enter the answers in blue shaded cells
Account Amount (in millions)
a. Bank’s total assets vault cash $2 million
Total Assets C
Account Amount (in millions)
b. Bank’s total liabilities T F
T F
T F
Total Liabilities C
Amount (in millions)
c. Owners’ capital account T F
T F
Total C

P3-6

Problem 3-6
A bank’s assets consist of: Cash: $1.5 million Loans: $10 million Securities: $4.5 million Fixed assets: $2 million In addition, the bank’s owners’ capital is $1.5 million. a. Calculate the equity capital ratio. b. If $2 million in bad loans were removed from the bank’s assets, show how the equity capital ratio would change.
Answer:
Enter the answers in blue shaded cells
Category Amount
a. Equity Capital Capital F
Assets C
Liabilities C
Ratio T - Formula C
Category Amount
b. Recalculated Capital C
Assets C
Liabilities (from a.) F
Ratio T - Formula C
Explain the change T