Financial Economics

2408 Words Mar 3rd, 2014 10 Pages
Assignment 1
Assignment 1 is due after you complete Lessons 1 to 4. It is worth 20% of your final grade.

Prepare your responses to these assignment problems in a word processing file; put financial data in a spreadsheet file. As you complete the assignment problems for each lesson, add your responses to these files.
Do not submit your answers for grading until you have completed all parts of Assignment 1.

Note: In assignments, show all calculations to 4 decimal places.
Lesson 1: Assignment Problems

1.1 Households make four kinds of economic decisions (textbook, pp. 4–5). Suppose you have two households with the same income. Household A has one income earner and Household B has two income earners.
How would the four types
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degree. One wants to start a restaurant and another wants to work as a subcontractor in a building trade. The third friend wants to put together a firm with a couple of other graduates to provide several kinds of complementary financial services including insurance, financial planning, and bookkeeping.

What form of business organization (textbook, pp. 8–9) would you suggest each of the three friends should use, and why? (12 marks) A corporation business form is suitable for the friend who wants to start a restaurant. There are some advantages for corporation: first, a corporation is distinct from its owners. The corporation can own property, borrow, and enter into contracts. Second, the shareholders have limited liabilities, unlike other business form, they are just liable for the amount they invested. Third, it's easier to loan money for a corporation than other business form. A sole proprietorship business form is good for the friend who wants to be a subcontract in a building trade. Subcontractor means a person or a business which has a contact with a contractor to provide some portion of the work or services on a project which the contract has agreed to. In the subcontractor friend case, the friend can set his business as a sole proprietorship which is a firm owned by an individual or a family. All of the business's assets and liabilities are also personal assets and liabilities, a sole proprietorship has unlimited liability for