FINC 341 SI Session 7_ Interest Rates & Markets_Institutions

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Texas A&M University *

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341

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Economics

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Apr 3, 2024

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FINC 341-Fall 2022, Professor Guyton Session Times/Locations SI Leader: Rebecca Kong ( rebecca.kong@tamu.edu ) Sunday: 8:00 – 9:00 pm (Zoom) Website: https://sites.google.com/tamu.edu/finc-341/rebecca-kong Monday: 7:00 – 8:00 pm WCBA 103 Zoom Meeting ID: 973 825 3792 | Password: SI Thursday: 8:00 – 9:00 pm WCBA 104 Date: 02/05/2023 Please sign into the QR Code for attendance! FINC 341 Session #7: Financial Statements, Interest Rates, & Markets Warm Up i Please use the draw graphs to prove your answer for the following: A. Which stock markets are market-weighted? a. Which stock markets work well or move together? B. With your small group, draw out two YTM curves, one abnormal and one normal curve and label the following categories on the x-axis: short-term (<1-yr), intermediate term, and long-term. a. How will inflation change? And why (MRP)? How will the economy react? Main Activity ii Hall Incorporated is currently using 30% debt and 70% equity for its capital structure. What would happen if this firm used more leverage (debt) and less equity capital? (The total dollar value of the capital does not change.) a. ROA would increase a little, and ROE would decrease. b. ROA would decrease a little, and ROE would increase. c. ROA would stay exactly the same, and ROE would decrease. d. Both ROA and ROE would decrease. e. Both ROA and ROE would increase.
iii Which of the following is most FALSE? a. The Dow Jones Industrial Average (“the Dow”) began with just 10 stocks but currently has 30 stocks of leading companies. b. The NASDAQ Composite Index is generally regarded as an economic indicator of the high-tech industry and is market-value weighted. c. The S&P 500 Index is widely regarded as the standard for measuring large-cap U.S. stock market performance. It is not market-value weighted. d. An efficient market is a market in which prices are close to intrinsic values and stocks seem to be in equilibrium. e. Exchange Traded Funds (ETFs) buy a portfolio of stocks of a certain type (category), and then sell ETF shares of the mixture of the stocks combined. iv Which of the following is most FALSE? a. Proponents of high-frequency trading (HFT) firms argue that HFT firms generate liquidity in the market. b. Critics of HFT firms argue that HFT creates instability in the market. c. Robo-advisors utilize algorithmic technology to create relatively low-cost optimal investment portfolios for investors. d. When several large firms join together to finance a large project, this is known as crowdfunding. e. A derivative is any security who value is derived from the price of some other “underlying” asset. v Suppose a firm has the following taxable income shown below. How much loss would be allowed to be carried forward past 2022? Year Taxable Income 2018 $20,000 2019 $15,000 2020 $10,000 2021 ($30,000) 2022 $16,000 a. $8,000 of loss b. $14,000 of loss c. $4,000 of loss d. $0 of loss e. None of the above
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