Fi360

933 Words Sep 23rd, 2015 4 Pages
* Chapter 4: Problems 4-1, 4-12 * Chapter 5: Problems 5-1, 5-4, and 5-9
Question 4-1
What is the relationship between the price of a financial asset and the return that investors require on that asset, holding other factors constant?

The relationship between the price and the return that an investor requires is that the return will need to be greater to increase the return on investment. If the return is lower and the price is high then the return on investment will be lower, the higher the price goes the higher the return on that must be to be worth the initial investment.

Question 4-12

Go to www.stockcharts.com/freecharts/yieldcurve.html and click on the animated yield-curve graph (be sure JAVA is enabled on your
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Good investments should continue to grow, if they stagnate so will prices, so will appreciation, and so will return on investments. Buying into a good company will not have a risk reward (sometimes) that is worth the investment. Another factor could be depreciation of the dollar value, or increase in inflation. A company that pays a dividend but the inflation rate rises higher than the amount given causes the investment no longer to be worthwhile.

Question 5-9
Why is the relationship between an investment banker and a firm selling securities somewhat adversarial? A firm sells securities as a way to gain their own funds. However an investment banker would rather get the lowest price possible due to the fact that securities with lower prices are easy to sell and this also causes lower overhead for the investment banker. This is basically the same relationship between a retailer and a manufacturer. A retailer hopes to get the lowest price to sell the product at their store, while a manufacturer would like the highest price because this is their form of revenue. The investment bankers basically act like an auction trying to bid for the lowest securities in hopes to “flip” the securities for a large profit, or largest possible

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