Financial engineering has been disparaged as nothing more than paper shuffling. Critics argue that resources used for rearranging wealth (i.e., bundling and unbundling financial assets) might be better spent on creating wealth (i.e., creating real assets). Evaluate this criticism. Are any benefits realized by creating an array of derivative securities from various primary securities?

Q: True or False In perfect capital markets, with no taxes or other market imperfections, investors…

A: Perfect capital market is a market place where there is a large number of buyers and sellers and no…

Q: How do transaction costs and asymmetric information hinder the growth of financial markets?

A: Transaction cost : transaction cost are expense incurred when buying or selling goods or services.…

Q: Not properly fading the return on the invested capital’ is one the common valuation mistakes…

A: Financial analysts perform the valuation of the capital invested with the help of three important…

Q: Kidman corporation is trying to raise capital. What method would be the least risky to raise capital…

A: The credit ratings provide information about the creditworthiness of a company or an individual.

Q: Why is it important for an investor to create a well-diversified investment portfolio? How should an…

A: Diversification is a methodology in which risk of the portfolio is reduced by distributing…

Q: Which of the following statements about diversification is INCORRECT? A) Diversification is…

A: Diversification is used as a strategy to manage risks.

Q: Capital Asset Pricing Model is based on certain assumptions, which have been criticized after…

A: Asset pricing is a linear function of the beta value of market return: When the market returns…

Q: Can the goal of maximizing the value of the stock conflict with other goals, such as avoiding…

A: In corporation the maximize the value of shareholders wealth is basic objectives of management of…

Q: What were the direct and indirect costs of the LIBOR scandal for Barclays? Are these costs only a…

A: The LIBOR Scandal: The LIBOR Scandal came to light in 2012 when Barclays and other banks admitted…

Q: Discuss how the free-rider problem aggravates adverse selection and moral hazard problems in…

A: The adverse selection problem in the security market cannot be completely solved by the system of…

Q: Suppose you need additional capital to expand,and you sell some stock to outside investors. If…

A: As the proprietor or manager, since the corporation, the advantage from augmented wealth, but also…

Q: What is meant by excessive portfolio turnover? Which behavioral bias is primarily responsible for…

A: Portfolio turnover is a measure of how quickly the management of a fund buy or sell shares over a…

Q: Explain why finance theory, combined with well-diversifiedinvestors and “homemade hedging,” might…

A: The question is based on the concept of risk management in well diversified efficient investment.

Q: Financial theory (and the narrative in the textbook) indicates that NPV is the theoretically correct…

A: Introduction: This question is related to concept of Net present value (NPV) in Capital budgeting.…

Q: Which of the following is not an advantage of technical analysis identified by technicians? a.…

A: Financial analysis is the process through which the budgets, operations, projects, businesses, and…

Q: Which of the following is TRUE about the strong form of market efficiency?     Insider information…

A: Market Efficiency Hypothesis (MEH) is an assumption which states that prices of the securities/stock…

Q: Describe some of the motives and mistakes made by the investors?

A: Investors are driven by different motives when taking decision to make investment in specific…

Q: What method would be the least risky to raise capital if it has a less-than-favorable credit rating?

A: K Corporation is trying to raise capital. Capital is needed by any company for growth purpose. So K…

Q: Asymmetric information makes it hard for investors to sell securities. Banks, meaning both…

A: Asymmetric Information means the possession of greater knowledge by one than the other.

Q: market prices reflect underlying asset values.

A: Market refers to the place where the purchase or sale of goods and services takes place like…

Q: Discuss why it is advisable to invest in a group of financial assets rather than investing in just…

A: An investment is refer as an asset purchased with intention to earn income at some time in future.…

Q: Why do firms generally prefer to borrow funds to obtain long-term financing rather than issue shares…

A: When a firm or company needs capital to grow or start a new project then it uses debt or equity or…

Q: please explain why insider trading is bringing harm to the capital market activity

A: When the investor's buying and selling the securities from the capital market  from the person who…

Q: Financial assets include stocks and bonds. These are fairly simple securities that can often be…

A:

Q: Why might a company hold low-yielding marketable securitieswhen it could earn a much higher return…

A: Introduction: Marketable security is a general word encompassing transactions that a company can…

Q: Analyze why, despite employing various investment appraisal techniques, large investment projects in…

A: Capital project is the project which helps in improving and maintaining the asset, often known as…

Q: Which of the following is false regarding the secondary market? a) Secondary markets provide the…

A: Secondary markets are financial markets where investors and traders can purchase and sell securities…

Q: Which of the following is FALSE about the semi-strong form of market efficiency?     All publicly…

A: The semi strong efficiency theory follows  that because all information that is public is used in…

Q: Why might it be rational for a small firm that does not have access to the capital markets touse the…

A: The payback period in one of the capital budgeting technique and it calculates the time period for…

Q: Do you think investors can earn abnormal returns in financial markets that are at least semi…

A: Semi strong efficiency is a situation where all the public information about the stock prices is…

Q: Why is it reasonable to ignore diversifiable risk and care only about nondiversififiable risk? What…

A: Diversifiable risk is that risk that can be easily diversified by making the investment into…

Q: critically discuss why financial markets should be regulated in terms of  asymmetric information,…

A: Financial market is taking asymmetric information, As it involved one of the two parties, they take…

Q: market mispricing creates arbitrage opportunities, is this true and how. the actions of…

A: Mispricing causes a divergence between the market price of a security and the fundamental value of…

Q: What is RIGHT? Preferred stocks are a more expensive source of funds than common stocks O A higher…

A: Different sources of funds have different costs associated with them. For this reason, WACC is…

Q: The financial market offers the investors a means to sell their financial asset thereby a.…

A: Financial Market is a marketplace where financial assets, securities, and other marketable…

Q: How does the equity method discourage the manipulation of net income by investors?

A: Equity method is used for accounting for investments by one company in another company when the…

Q: What theory asserts that investors cannot benefit from technical analysis, fundamental analysis, or…

A: strong form of efficient theory asserts that investors cannot benefit from technical analysis,…

Q: The house money effect is used to explain the tendency of investors to take higher risks when…

A: House money effect : According to the house money effect, people would risk more with their…

Q: Some accountants believe that financial statement analysis is of little benefit as it contradicts…

A: Financial accounting is the branch of accounting that helps in summarizing, analyzing and recording…

Q: Describe clearly how theories from behavioural finance can justify the following abnormal phenomena…

A: This is Hindsight. Hindsight bias is the misconception, after the fact, that one “always knew” that…