Everything else being equal, which would be more valuable to you – a derivative instrument whose value is derived from an underlying instrument with a very volatile price history or one derived from an underlying instrument with a very stable price history? Explain your choice.
Answer to relevant QuestionsYou decide to start a business selling covers for smart phones in a mall kiosk. To buy inventory, you need to borrow some funds. Why are you more likely to take out a bank loan than to issue bonds?The design and function of financial instruments, markets, and institutions aretied to the importance of information. Describe the role played by information in each of these three pieces of the financial system.As the manager of a financial institution, what steps could you take to reduce the risks referred to in Problem 21?Given a choice of two investments, would you choose one that pays a total return of 30 percent over five years or one that pays 0.5 percent per month for five years?Recently, some lucky person won the lottery. The lottery winnings were reported to be $85.5 million. In reality, the winner got a choice of $2.85 million per year for 30 years or $46 million today.a. Explain briefly why ...
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