,ACCESS Test Bank for Foundations of Investments 1st Edition Adair
a a a a a a a a
SolutionaandaAnsweraGuide:aAdair/Nofsinger,aFoundationsaofaInvestments,a1e,aChaptera01:aIntroductionatoaInvestments
Solution and Answer Guide a a a
Adair/Nofsinger,aFoundationsaofaInvestments,a1e,aChaptera01:aIntroductionatoaInvestm
ents
Table of Contents
a a
Questions ....................................................................................................................................2
CaseaStudy ..................................................................................................................................7
©a2024aCengage.aAllaRightsaReserved.aMayanotabe
s ynursytest.store ostedatoaaapubliclyaaccessibl 1
m
website,ainawholeaorainapart e
.
,ACCESS Test Bank for Foundations of Investments 1st Edition Adair
a a a a a a a a
SolutionaandaAnsweraGuide:aAdair/Nofsinger,aFoundationsaofaInvestments,a1e,aChaptera01:aIntroductionatoaInvestments
Questions
1. Realavs.aFinancialaAssets.aCompareaandacontrastarealaassetsawithafinancialaassets.a
(LOa1-1)
Answer:
Realaassetsaareaassetsathataeitheracontributeatoaproductionaoracreateaincomeaorawealth
.aMostarealaassetsahaveaaaphysicalaexistence,awithatheamostacommonaexamplesabeingar
ealaestateaandaland,amachinery,apreciousametals,aandacommodities.aHowever,acertaina
intangibleaassets,asuchaasapatents,atrademarks,aandaintellectualaproperty,acanaalsoacre
ateaincome,asoatheyaareaconsideredarealaassets,atoo.
Financialaassetsaareanonphysicalaassetsawhoseavaluesaareaderivedafromaeitheraaacontr
actualaclaimaonarealaassetsaoratheacashaflowsaproducedabyathosearealaassets.aExample
saofafinancialaassetsaincludeastocks,abonds,acash,abankadeposits,acertificateaofadepositsa
(CDs),aloansamade,acorporateareceivables,aderivativeasecurities,aandacryptocurrencies
.
Theadifferenceabetweenarealaandafinancialaassetsaisathatarealaassetsaareausedatoaprodu
ceaeconomicaoutput,awhileafinancialaassetsaserveatoaallocateahowathataoutputaisadivide
daup.
2. CapitalaFlow:aCorporateavs.aInvestoraView.aRegardingatheaflowaofacapitalabetweenai
nvestors,acorporations,aandatheagovernment,ahowadoesatheaviewaofatheacorporationad
ifferafromatheaviewaofatheainvestor?a(LOa1-2)
Answer:
Investorsaprovideamoneyatoacompaniesaasacapital.aTheacompaniesauseathatacapitalatoai
nvestainaprojects.aWhenatheaprojectsareturnacashaflowsatoatheafirm,aanyaprofitsaareausua
llyasubjectatoataxationabyafederal,astate,aand/oralocalagovernments.aSomeaofathearemai
ninga after-
taxa profitsa area retaineda ina thea firma toa funda futurea operationsa andathearestaareapaidao
utatoainvestors.
Theacorporationaviewaofathisasystemafocusesaonadecisionsaconcerninga(1)atheaformaa
ndaamountaofafundingareceivedafromainvestors,a(2)awhichaprojectsatoaputatheafundsain,
a(3)ahowatoamanageataxes,aanda(4)ahowamuchaofathearevenuesaofaexistingaprojectsatoa
keepaversusapayingabackatheafirm’sainvestors.
Theainvestorsaviewaofathisasystemafocusaonadecisionsasuchaasa(1)awhichafirmsaanda wh
atatypesaofafinancialainstrumentsatoainvestain,a(2)awhatatermsaandamaturitiesaofaretu
rna casha flowsa toa seek,a anda (3)a howa toa besta managea thea timinga anda amountsa ofataxe
sapaid.
©a2024aCengage.aAllaRightsaReserved.aMayanotabe
s ynursytest.store ostedatoaaapubliclyaaccessibl 2
m
website,ainawholeaorainapart e
.
, ACCESS Test Bank for Foundations of Investments 1st Edition Adair
a a a a a a a a
SolutionaandaAnsweraGuide:aAdair/Nofsinger,aFoundationsaofaInvestments,a1e,aChaptera01:aIntroductionatoaInvestments
3. CapitalaFlowaFactors.aWhataareatheacomplicatingafactorsathatamakeatheaflowaofa
capitala amonga corporationsa anda investorsa uncertain?a (LOa 1-2)
Answer:
Somea ofa thea complicatinga factorsa thata makea thea flowa ofa capitala amonga corporationsaa
ndainvestorsauncertainaareatheafollowing:
Theareturnsafromaprojectsainawhichafirmsahaveainvestedaareanotaalwaysapositive,aanda
thoseainvestmentsaareanotaalwaysaprofitable.aTheademandaforatheagoodsaandaservice
saproducedabyathoseaprojectsaareaoftenasubjectatoachangeaoveratimeainaaacompetitivea
macroeconomicaenvironment.aThatachangeacouldanegativelyaaffectaaafirm’saoperatio
nsaasawellaasaitsaabilityatoasellathoseaproductsaandaservicesaatatheirahoped-foraprices.
Firms’aearningsacanafluctuateaandaareanotaalwaysaasaexpected.aTherefore,aaafirmacann
otaguaranteeatheaamountaandatimingaofatheareturnsatheyacanagiveabackatoainvestors.aEv
enaifafirmsacouldaperfectlyaforecastatheabefore-
taxareturnsafromatheiraoperations,atheyahaveanoacontrolaoveragovernmentataxaregulatio
nsathataimpactafinalacashaflows.
Furthermore,atheapricesaofafinancialaassetsachangeabecauseaofathoseauncertainties,aa
ndaasamoreainformationaarrivesaaboutaaaparticularacompany,atheavaluationaofathoseaas
setsaalsoachanges,awhichacausesatheapriceathatatheainvestorapaysaforathoseaassetsatoac
hangeaasawell.aFinally,athereaisaaaveryalargeanumberaofafinancialaassetsainawhichainvest
orsacanainvest,awhichamakeainvestingachoicesamoreacomplicated.
4. Valuation.aWhatafactorsaareainvolvedainaassessingavalue?a(LOa1-3)
Answer:
Thea valuationa ofa assetsa isa thea processa ofa determininga whata ana asseta isa wortha today.a Itai
sa baseda ona findinga today’sa valuea ofa alla thea expecteda futurea casha flowsa thata thea asseta
willaprovideaoverathealifeaofatheaasset.
Fromathisadefinition,aweaseeathatathereaareathreeafactorsainvolvedainavaluingatheaass
et:a(1)athealifeaofatheaasset,a(2)atheaexpectedacashaflowsatheaassetawillaprovideaovera itsalif
e,aanda(3)atheariskaofathoseacashaflowsatoadetermineatheadiscountarateausedatoafindat
heapresentavalueaofatheacashaflows.
Thoseafactorsavaryafromaoneaassetatoatheaotheraandamakeatheavaluationaprocessacomp
licated.aForaexample,atheaexpectedacashaflowsaonabondsaareaeasieratoacalculate,awhileat
heaexpectedacashaflowsaonastocksaareamuchamoreadifficultatoapredict.aSomeaassetsaha
veafinitealives,awhileaothersahaveainfinitealives.aAlso,atheariskinessaofaassetsaisanotatheasa
me,awhicharequiresadifferentadiscountarates.
©a2024aCengage.aAllaRightsaReserved.aMayanotabe
s ynursytest.store ostedatoaaapubliclyaaccessibl 3
m
website,ainawholeaorainapart e
.
a a a a a a a a
SolutionaandaAnsweraGuide:aAdair/Nofsinger,aFoundationsaofaInvestments,a1e,aChaptera01:aIntroductionatoaInvestments
Solution and Answer Guide a a a
Adair/Nofsinger,aFoundationsaofaInvestments,a1e,aChaptera01:aIntroductionatoaInvestm
ents
Table of Contents
a a
Questions ....................................................................................................................................2
CaseaStudy ..................................................................................................................................7
©a2024aCengage.aAllaRightsaReserved.aMayanotabe
s ynursytest.store ostedatoaaapubliclyaaccessibl 1
m
website,ainawholeaorainapart e
.
,ACCESS Test Bank for Foundations of Investments 1st Edition Adair
a a a a a a a a
SolutionaandaAnsweraGuide:aAdair/Nofsinger,aFoundationsaofaInvestments,a1e,aChaptera01:aIntroductionatoaInvestments
Questions
1. Realavs.aFinancialaAssets.aCompareaandacontrastarealaassetsawithafinancialaassets.a
(LOa1-1)
Answer:
Realaassetsaareaassetsathataeitheracontributeatoaproductionaoracreateaincomeaorawealth
.aMostarealaassetsahaveaaaphysicalaexistence,awithatheamostacommonaexamplesabeingar
ealaestateaandaland,amachinery,apreciousametals,aandacommodities.aHowever,acertaina
intangibleaassets,asuchaasapatents,atrademarks,aandaintellectualaproperty,acanaalsoacre
ateaincome,asoatheyaareaconsideredarealaassets,atoo.
Financialaassetsaareanonphysicalaassetsawhoseavaluesaareaderivedafromaeitheraaacontr
actualaclaimaonarealaassetsaoratheacashaflowsaproducedabyathosearealaassets.aExample
saofafinancialaassetsaincludeastocks,abonds,acash,abankadeposits,acertificateaofadepositsa
(CDs),aloansamade,acorporateareceivables,aderivativeasecurities,aandacryptocurrencies
.
Theadifferenceabetweenarealaandafinancialaassetsaisathatarealaassetsaareausedatoaprodu
ceaeconomicaoutput,awhileafinancialaassetsaserveatoaallocateahowathataoutputaisadivide
daup.
2. CapitalaFlow:aCorporateavs.aInvestoraView.aRegardingatheaflowaofacapitalabetweenai
nvestors,acorporations,aandatheagovernment,ahowadoesatheaviewaofatheacorporationad
ifferafromatheaviewaofatheainvestor?a(LOa1-2)
Answer:
Investorsaprovideamoneyatoacompaniesaasacapital.aTheacompaniesauseathatacapitalatoai
nvestainaprojects.aWhenatheaprojectsareturnacashaflowsatoatheafirm,aanyaprofitsaareausua
llyasubjectatoataxationabyafederal,astate,aand/oralocalagovernments.aSomeaofathearemai
ninga after-
taxa profitsa area retaineda ina thea firma toa funda futurea operationsa andathearestaareapaidao
utatoainvestors.
Theacorporationaviewaofathisasystemafocusesaonadecisionsaconcerninga(1)atheaformaa
ndaamountaofafundingareceivedafromainvestors,a(2)awhichaprojectsatoaputatheafundsain,
a(3)ahowatoamanageataxes,aanda(4)ahowamuchaofathearevenuesaofaexistingaprojectsatoa
keepaversusapayingabackatheafirm’sainvestors.
Theainvestorsaviewaofathisasystemafocusaonadecisionsasuchaasa(1)awhichafirmsaanda wh
atatypesaofafinancialainstrumentsatoainvestain,a(2)awhatatermsaandamaturitiesaofaretu
rna casha flowsa toa seek,a anda (3)a howa toa besta managea thea timinga anda amountsa ofataxe
sapaid.
©a2024aCengage.aAllaRightsaReserved.aMayanotabe
s ynursytest.store ostedatoaaapubliclyaaccessibl 2
m
website,ainawholeaorainapart e
.
, ACCESS Test Bank for Foundations of Investments 1st Edition Adair
a a a a a a a a
SolutionaandaAnsweraGuide:aAdair/Nofsinger,aFoundationsaofaInvestments,a1e,aChaptera01:aIntroductionatoaInvestments
3. CapitalaFlowaFactors.aWhataareatheacomplicatingafactorsathatamakeatheaflowaofa
capitala amonga corporationsa anda investorsa uncertain?a (LOa 1-2)
Answer:
Somea ofa thea complicatinga factorsa thata makea thea flowa ofa capitala amonga corporationsaa
ndainvestorsauncertainaareatheafollowing:
Theareturnsafromaprojectsainawhichafirmsahaveainvestedaareanotaalwaysapositive,aanda
thoseainvestmentsaareanotaalwaysaprofitable.aTheademandaforatheagoodsaandaservice
saproducedabyathoseaprojectsaareaoftenasubjectatoachangeaoveratimeainaaacompetitivea
macroeconomicaenvironment.aThatachangeacouldanegativelyaaffectaaafirm’saoperatio
nsaasawellaasaitsaabilityatoasellathoseaproductsaandaservicesaatatheirahoped-foraprices.
Firms’aearningsacanafluctuateaandaareanotaalwaysaasaexpected.aTherefore,aaafirmacann
otaguaranteeatheaamountaandatimingaofatheareturnsatheyacanagiveabackatoainvestors.aEv
enaifafirmsacouldaperfectlyaforecastatheabefore-
taxareturnsafromatheiraoperations,atheyahaveanoacontrolaoveragovernmentataxaregulatio
nsathataimpactafinalacashaflows.
Furthermore,atheapricesaofafinancialaassetsachangeabecauseaofathoseauncertainties,aa
ndaasamoreainformationaarrivesaaboutaaaparticularacompany,atheavaluationaofathoseaas
setsaalsoachanges,awhichacausesatheapriceathatatheainvestorapaysaforathoseaassetsatoac
hangeaasawell.aFinally,athereaisaaaveryalargeanumberaofafinancialaassetsainawhichainvest
orsacanainvest,awhichamakeainvestingachoicesamoreacomplicated.
4. Valuation.aWhatafactorsaareainvolvedainaassessingavalue?a(LOa1-3)
Answer:
Thea valuationa ofa assetsa isa thea processa ofa determininga whata ana asseta isa wortha today.a Itai
sa baseda ona findinga today’sa valuea ofa alla thea expecteda futurea casha flowsa thata thea asseta
willaprovideaoverathealifeaofatheaasset.
Fromathisadefinition,aweaseeathatathereaareathreeafactorsainvolvedainavaluingatheaass
et:a(1)athealifeaofatheaasset,a(2)atheaexpectedacashaflowsatheaassetawillaprovideaovera itsalif
e,aanda(3)atheariskaofathoseacashaflowsatoadetermineatheadiscountarateausedatoafindat
heapresentavalueaofatheacashaflows.
Thoseafactorsavaryafromaoneaassetatoatheaotheraandamakeatheavaluationaprocessacomp
licated.aForaexample,atheaexpectedacashaflowsaonabondsaareaeasieratoacalculate,awhileat
heaexpectedacashaflowsaonastocksaareamuchamoreadifficultatoapredict.aSomeaassetsaha
veafinitealives,awhileaothersahaveainfinitealives.aAlso,atheariskinessaofaassetsaisanotatheasa
me,awhicharequiresadifferentadiscountarates.
©a2024aCengage.aAllaRightsaReserved.aMayanotabe
s ynursytest.store ostedatoaaapubliclyaaccessibl 3
m
website,ainawholeaorainapart e
.
