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Finance Questions

1. Is a single dollar worth more today or a year from now? Why?

2. I have two available projects in which I can invest. Project A has
three possible (equally likely returns on investment (10%), 15%, and
55%. Project B similarly has three returns (also equally likely) of
15%, 20%, and 25%. The average return on these investments is 20%.
Therefore, wouldn't I be indifferent between the two as investment
opportunities?

3. Congratulations! You just won a $1 million lottery. You have the
choice of taking 20 annual payments of $50,000 per year or a lump sum of
$400,000 right now. What considerations do you need to take into
account when deciding which option to accept? Assume that there are no
taxes.

4. Why are changes that the Federal Reserve makes to the discount rate
so important to business investment?

5. Can a series of highly risky investments be combined into a low risk
portfolio?

6. Why is shelf registration important?

7. What role does the underwriter play in a new issue?

Solution Preview

1. Is a single dollar worth more today or a year from now? Why?

It is worth more today. This is the time value of money principal. The dollar can be invested to earn interest and so is valuable today. Also inflation decreases the purchasing power, so a dollar today is more valuable than a year from now.

2. I have two available projects in which I can invest. Project A has
three possible (equally likely returns on investment (10%), 15%, and
55%. Project B similarly has three returns (also equally likely) of
15%, 20%, and 25%. The average return on these investments is 20%.
Therefore, ...

Solution Summary

The solution has details of various essay type finance questions.

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