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- Describe the principal-agent problem between firm owners and managers. Make sure you identify the principal and the agent and discuss the information asymmetries and different goals of the two players.How information asymmetry can impact economic efficiency. In your answer cover the following: a) What is principal-agent problem? Support your answer with relevant examples. b) What is efficiency wage? Support your answer with appropriate graph.Describe the principal-agent problem between firm owners and managers.
- Financial institutions in the U.S. economy Suppose Kenji would like to use $6,000 of his savings to make a financial investment. One way of making a financial investment is to purchase stock or bonds from a private company. Suppose RoboTroid, a robotics firm, is selling bonds to raise money for a new lab—a practice known as ____equity / debt_____finance. Buying a bond issued by RoboTroid would give Kenji ___a claim to partial ownership in / an IOU, or promise to pay, from___ firm. In the event that RoboTroid runs into financial difficulty,____the stockholders / Kenji and the other bondholders _____ will be paid first. Assuming that everything else is equal, a corporate bond issued by an electronics manufacturer most likely pays a ___higher / lower__ interest rate than a municipal bond issued by a state.Answer the following sub-questions using economic theory, the principal agent theory and empirical evidence. Most UK and American CEOs are paid significantly more than the average employee of their firms. Does this fact suggest that CEOs are overpaid? French and German CEOs earn considerably less than US CEOs, does this suggest that US CEOs are overpaid? The firm’s stock market price is uncorrelated with the FTSE100 index. In economic terms, does it make sense to pay the firm’s CEO based on the FTSE100 index? Explain. Taking into account the article by Bebchuk et al “The Wages of Failure”, discuss the advantages and disadvantages of incentive pay and the problems of incentive pay in the case of Bear Stearns and Lehman Brothers. Also discuss reforming incentive pay to deal with the problems unearthed at Bear Stearns and Lehman BrothersDobby Law has a ten lawyers on staff who handle workers' compensation and workplace discrimination lawsuits. Lake has an excellent success rate and frequently wins large settlements for their clients. Because of the size of the settlements, many clients are interested in establishing trust to manage the investing and distribution of the funds. Dobby Law does not have a trust or estate lawyer on staff and is debating between hiring one using an attorney at a nearby law firm that specializes in wills, trust, and estates to handle the trusts of Dobby's Clients. Hiring a new assistant would require $120,000 in salary for the attorney, an additional 20% in benefits, a legal assistant for the new attorney for 20 hours per week at acost of $20 per hour, and conversion of a storage room into an office. Dobby spent $100,000 on redecorating the offices last year and has sufficient furniture for a new office. The attorney at the nearby firm would charge a retrainer of $50,000 plus $200 per hour…
- A market failure in banking occurs if: Information asymmetry exists between the borrower and the lender. There is the possibility of a moral hazard once the loan is made. There is there is the possibility of adverse selection. One of the above problems prevents the bank from making loans in a given market.At the start of 2018, Gina had an estimated wealth of $150,000. During the year of $2018, she earned a total salary of $80,000, spent $30,000 and the value of her stocks fell by $20,000. What is the value of her wealth at the end of 2018? Group of answer choices $210,000 $200,000 $180,000 $100,000Which of the following assertions about a Whole Life insurance policy is TRUE?A. Premium payments may be increased or decreased at the premium payer's discretion.B. A person's beneficiary designation can only be changed if that individual passes a medical examination. C. The policy owner can borrow against the policy's cash value. D. In order to receive the death benefit, the specified beneficiary must provide proof of ongoing insurable interest in the insured's life.
- Suppose Tyler decides to use $10,000 currently held as savings to make a financial investment. One method of making a financial investment is the purchase of stock or bonds from a private company. Suppose Warm Breeze, a cloud computing firm, is selling bonds to raise money for a new lab. This practice is called finance. Buying a bond issued by Warm Breeze would give Tyler the firm. In the event that Warm Breeze runs into financial difficulty, will be paid first. Suppose instead Tyler chooses to buy 250 shares of Warm Breeze stock. Which of the following statements are correct? Check all that apply. Expectations of a recession that will reduce economywide corporate profits will likely cause the value of Tyler's shares to decline. The Dow Jones Industrial Average is an example of a stock exchange where he can purchase Warm Breeze stock. An increase in the perceived profitability of Warm Breeze will likely cause the value of Tyler's shares to rise. Alternatively, Tyler could undertake…Question 9 Which of the following is true in the principal agent model?1. The agent has more information and may shirk by behaving in a way contrary to the principal's interest. 2. The principal has less information and may shirk by behaving in a way contrary to the agent's interest. 3.The principal has more information and may shirk by behaving in a way contrary to the agent's interest. 4.The agent has less information and may shirk by behaving in a way contrary to the principal's interest.Indirect interlocks permit two board members of different corporations to sit on each other’s boards of directors.T or F?
