2-1
SOLUTION MANUAL FOR
Financial Management Principles And Applications 14e Global Edition Sheridan
Titman
Part 1 Study Questions [Solutions to Study Questions]
Part Two Study Problems [Solutions to End-of-Chapter Problems]
netoformmolecules.**ChemicalBonds**:Discussionondifferenttypesofchemicalbonds(covalent,ionic,hydrogenbonds)andtheirroleinholdingatomstogetherinmoleculesandcompounds.**PropertiesofWater**:Explorationof
sapolarmolecule,itsuniqueproperties(highcohesion,adhesion,surfacetension,highspecificheatcapacity),anditsimportanceinbiologicalsystems.**Acids,Bases,andpH**:Definitionofacidsandbases,theirroleinchemicalreaction
heconceptofpHasameasureofhydrogenionconcentration.ImportanceofpHregulationinbiologicalprocesses.**OrganicMolecules**:Introductiontoorganicmoleculesessentialforlife,includingcarbohydrates,lipids,proteins,andn
acids.Structure,function,andbiologicalsignificanceofeachgroupofmolecules.**Carbohydrates**:Structureofcarbohydrates(monosaccharides,disaccharides,polysaccharides),theirrolesasenergysourcesandstructuralcompone
ells.**Lipids**:Classificationoflipids(fats,phospholipids,steroids),theirstructure,functions(energystorage,cellmembranes),androlesinbiologicalprocesses.**Proteins**:Structureofproteins(aminoacids,primary,secondary,te
andquaternarystructure),functions(enzymes,structuralproteins,antibodies),andproteinsynthesis.**NucleicAcids**:Structureandfunctionofnucleicacids(DNAandRNA),includingnucleotidestructure,DNAreplication,transcri
andtranslation.**EnzymesandCatalysis**:Roleofenzymesasbiologicalcatalysts,enzyme-
substrateinteractions,enzymespecificity,factorsinfluencingenzymeactivity,andregulationofenzymefunction.**EnergyandMetabolism**:Overviewofenergytransformationsinbiologicalsystems,includinganintroductiontome
m,energycarriers(ATP),andmetabolicpathways(e.g.,glycolysis,Krebscycle).**SummaryandKeyConcepts**:Thechapterconcludeswithasummaryofkeyconceptsrelatedtothechemicalbasisoflife,reinforcingunderstandingofth
dationalprinciplesofbiochemistryandtheirsignificanceinbiologicalprocesses.Chapter2providesacomprehensiveintroductiontothechemicalfoundationsthatunderpinbiologicalsystems.Itestablishesacrucialunderstandingofhow
icalprinciplesgovernthestructure,function,andinteractionsofbiologicalmoleculesessentialforlife.Thisknowledgeservesasabasisforfurtherexplorationintocellularprocesses,genetics,andphysiologicalmechanismscoveredinsub
ntchaptersofthetextbook.IfyouhavespecificquestionsaboutanyofthesetopicsorwouldlikemoredetailedinformationonaparticularaspectofChapter2,feelfreetoask!Chapter3Chapter3of"EssentialsofBiology"bySylviaMaderandM
lWindelspecht,titled"TheOrganicMoleculesofLife,"focusesspecificallyonthemajorclassesoforganicmoleculesessentialforbiologicalsystems.Here’sanoverviewofwhatyoumightfindinthischapter:**IntroductiontoOrganicM
s**:Definitionoforganicmoleculesandtheirimportanceasthebuildingblocksoflife.Overviewofthemajorc
Part 1 Study Questions
Chapter 1
Solutions to Study Questions
1-1. The solution to this problem is dependent upon the student‘s experiences.
1-2. There are three basic types of issues that are addressed by the study of finance:
a. What long-term investments should the firm undertake? This area of finance is
generally referred to as capital budgeting.
b. How should the firm raise money to fund these investments? The firm‘s funding
choices are generally referred to as capital structure decisions.
c. How can the firm best manage its cash flows as they arise in its day-to-day operations?
This area of finance is generally referred to as working capital management.
1-3. First, investors demand a minimum return for delaying consumption that must be greater
than the anticipated rate of inflation. If they didn‘t receive enough to compensate for
anticipated inflation, investors would purchase whatever goods they desired ahead of time.
There isn‘t much incentive to postpone consumption if your savings are going to decline in
terms of purchasing power.
Investment alternatives have different amounts of risk and expected returns. Investors
sometimes choose to put their money in risky investments because these investments offer
higher expected returns. The more risk an investment has, the higher will be its expected
return – that‘s because risk investors don‘t like risk, in particular, they don‘t like the chance
that they might lose their money. That makes risky investments less attractive, which
means that to attract investors, riskier investments must be priced to offer investors a higher
expected rate of return. This relationship between risk and expected return is shown in
Figure 1.3.
Notice that we keep referring to expected return rather than actual return. We may have
expectations of what the returns for investing will be, but we can‘t peer into the future and
see what those returns are actually going to be. Until after the fact, you are never sure what
, 2-2
the return on an investment will be. That is why General Motors bonds pay more interest
than U.S. Treasury bonds of the same maturity. The additional interest induces some
investors to take on the added risk of purchasing a General Motors bond.
EducationLaw education provides students with the knowledge of legal principles, case law, legal frameworks, and ethical issues. It prepares students for legal practice, with specializations that may include constitution
criminal law, corporate law, human rights law, or intellectual property law.2.2. Structure of Law ExamsLaw exams typically have a more structured format compared to business exams, often requiring students to
demonstrate knowledge of legal statutes, case law, and their ability to apply legal reasoning. Common types of law exams include:Essay/Problem-Based Questions: In law exams, students are often given hypothetical
scenarios (problem questions) and are asked to analyze the legal issues involved. These require students to apply specific legal principles and statutes to the facts presented in the scenario.Multiple Choice Questions (MC
Some law exams, particularly in foundational subjects like contract law or tort law, may feature MCQs designed to test knowledge of legal terminology and fundamental concepts.Long Answer Questions: These questio
may require students to elaborate on a particular legal principle or case, exploring various perspectives or discussing its implications in practice.2.3. Skills Tested in Law ExamsLegal Analysis and Application: Law exa
test a student’s ability to identify relevant legal issues, apply appropriate laws and precedents, and reach conclusions based on the facts presented. This requires a deep understanding of case law and statutory law.Critica
Thinking: Law students must think,includingkeyfigures,discoveries,andadvancementsinbiologicaltheories.**ToolsandTechniques**:
1-4. Incremental cash flows describe the total cash effect on a company. This involves assessing
the difference between total cash flow to the company with the cash flow, and without the
cash flow. A company can then value these cash flows to see if it is worth more with the
project or without it.
1-5. The three business forms are:
1. Sole Proprietorship.
2. Partnership.
3. Corporation.
1. Sole Proprietorship:
Advantage:
• Forming a sole proprietorship is very easy; there are no forms to file and no partners to
consult since the founder of the business is the sole owner.
Disadvantage :
• These organizations typically have limited access to the alternative sources of
financing. The owners of a sole proprietorship typically raise money by investing their
own funds, and by borrowing from a bank.
2. Partnership
Advantage :
• An important advantage of the partnership is that it provides access to equity,
or ownership, financing from multiple owners in return for partnership shares, or
units of ownership.
Disadvantage :
• Conflict on division of profits between partners.
3. Corporation.
Advantages :
• The shareholders‘ liability is confined to the amount of their investment in the
company. In other words, if the corporation goes under, the owners can only
lose their investment.
• The life of the business is not tied to the life of the founding owners. For example, the
inventor Thomas Edison founded General Electric (GE) over a century ago. Edison died
in 1931, but the corporation lives on.
Disadvantage :
• Though management is expected to make ethical decisions that reflect the best interests
of the firm‘s owners, this is not always the case. Indeed, managers often face situations
where their own personal interests differ from the interests of shareholders.
, 2-3
If you were to start a lawn mowing business for the summer, you‘d probably form a sole
proprietorship. That is the simplest one to form – you don‘t have to do anything. Moreover,
with a lawn mowing business the probability of a law suit is quite low, so the advantage of
limited liability is not particularly important.
1-6. The shareholders are the owners of the corporation. The management should run business
so as to maximize the shareholder wealth without being greedy for quick money generation
by unethical conducts and practices.
staple of business exams, case studies present students with real-world business scenarios and ask them to apply their knowledge to solve complex problems. Case studies evaluate students' ability to
think critically and make strategic decisions.Essay/Short Answer Questions: These types of questions test the student’s ability to explain and analyze business concepts in a detailed and coherent
manner.1.3. Skills Tested in Business ExamsCritical Thinking and Problem-Solving: Business exams often include case studies that challenge students to apply theoretical knowledge to real-life
situations. These tests assess decision-making skills, as well as the ability to evaluate various business alternatives.Quantitative Analysis: For subjects like finance or economics, business exams often
require students to perform calculations and interpret data. The ability to analyze financial statements, project revenues, and manage budgets is essential.Communication and Writing Skills: Business
exams may require students to present ideas clearly and concisely. Students must convey complex concepts in a way that demonstrates their understanding of business principles.1.4. Preparing for
Business ExamsPreparing for business exams involves mastering both conceptual understanding and practical application. Students are encouraged to study theories and frameworks but also to keep up-
to-date with current business trends. Case studies from leading businesses can be helpful, as they illustrate how business concepts are applied in real-world scenarios. Group discussions and practicing
sample case studies can aid in refining analytical skills.________________________________________2. Law Exams2.1. Overview of Law
1-7. Shareholder wealth maximization isn‘t the goal of every firm. Privately owned Newman‘s
Own, the makers of salad dressing, spaghetti sauces, and other food products, was
established in 1982 with the goal of making money for educational and charitable purposes.
Paul Newman‘s estate and the Newman‘s Own Foundation donate all profits and royalties
after taxes for educational and charitable purposes.
1-8. Extreme ethical lapses such as those evident in the Madoff Ponzi scheme may also break
laws and result in fines or imprisonment. In less extreme cases, deceptive accounting
practices or sales techniques once exposed lead to a loss of trust. Because individuals and
firms are reluctant to do business with those they mistrust, a reputation for unethical
behavior over the long run leads to adversarial relations with business partners, a loss of
customers, and destruction of the firm's value
**:Considerationofethicalissues,societalimplications,andapplicationsofbiologicalknowledgeinareassuchasmedicine,biotechnology,conservation,andenvironmentalsustainability.**Historical
ectives**:Overviewofsignificantmilestonesandcontributionsinthedevelopmentofbiologyasascientificdiscipline,includingkeyfigures,discoveries,andadvancementsinbiologicaltheories.**Too
Techniques**:Introductiontolaboratorytechniques,instruments,andmethodologiesusedinbiologicalresearch,suchasmicroscopy,DNAsequencing,biochemicalanalysis,andcomputationalbiolog
Chapter 2
Solutions to Study Questions
2-1. The ―Regardless of Your Major‖ box describes two types of retirement plans: defined
contribution and defined benefit. The ―defined‖ part of each name means that benefits are
specified, or defined; the difference between the two plans is in when those benefits are
defined. Defined benefit (DB) plans specify the amounts to be paid in retirement—that is,
the benefits the retiree will receive are specified. Thus, the sponsor of the plan promises to
make specific payments to the retiree, and then the sponsor accepts the responsibility for
investing a pool of assets now (or at least, before the covered person retires) to ensure that
those benefits in fact can be paid in the future. Managing pension assets to ensure future
payments is complicated, and companies these days prefer to offer defined contribution
plans, like 401(k) plans, instead of defined benefit plans. Defined contribution (DC) plans
specify the contributions that will be made to the plan (now), not the benefits that will be
paid at retirement. It‘s a lot easier to specify an amount to be paid today than it is to ensure
that one will be made in the future. With defined contribution plans, employees accept the
responsibility of investing their funds to ensure adequate resources in retirement, removing
, 2-4
that burden from employers. It‘s therefore not surprising that employers prefer defined
contribution plans, while employees who have defined benefit plans count themselves lucky.
2-2. The three players who interact in the financial markets are borrowers, savers, and financial
intermediaries.
staple of business exams, case studies present students with real-world business scenarios and ask them to apply their knowledge to solve complex problems. Case studies evaluate students' ability to think critically and
strategic decisions.Essay/Short Answer Questions: These types of questions test the student’s ability to explain and analyze business concepts in a detailed and coherent manner.1.3. Skills Tested in Business ExamsCriti
Thinking and Problem-Solving: Business exams often include case studies that challenge students to apply theoretical knowledge to real-life situations. These tests assess decision-making skills, as well as the ability to
evaluate various business alternatives.Quantitative Analysis: For subjects like finance or economics, business exams often require students to perform calculations and interpret data. The ability to analyze financial state
project revenues, and manage budgets is essential.Communication and Writing Skills: Business exams may require students to present ideas clearly and concisely. Students must convey complex concepts in a way that
demonstrates their understanding of business principles.1.4. Preparing for Business ExamsPreparing for business exams involves mastering both conceptual understanding and practical application. Students are encoura
study theories and frameworks but also to keep up-to-date with current business trends. Case studies from leading businesses can be helpful, as they illustrate how business concepts are applied in real-world scenarios. G
discussions and practicing sample case studies can aid in refining analytical skills.________________________________________2. Law Exams2.1. Overview of Law
Borrowers need money to help finance some specific purpose—a student loan to help pay
for college, an auto loan for a car, or a mortgage for a house. Savers have money that they
don‘t need for consumption today, so they set this money aside to use in the future.
Financial intermediaries bring the two together, channeling the savers‘ ―extra‖ money to
the borrowers for their immediate use. If the borrowers and savers could get together
themselves somehow, they could ―cut out the middleman‖ and save the intermediation
costs. This might sound good—but is it feasible? Financial intermediaries specialize in
evaluating the creditworthiness of borrowers, so they help ensure that savers‘ money is
channeled to borrowers who will repay. They also allow efficient aggregation of small
amounts of individual savings into blocks of loanable funds large enough to be useful to
borrowers.
lenders
$
FINANCIAL
INTERMEDIARIES
$
borrowers
2-3. As outlined in section 2.2 of the text, a financial intermediary is a firm that collects money
from savers, bundles it into attractive sizes with attractive terms, and lends it to borrowers.
The principal types of financial intermediaries in the United States are:
COMMERCIAL BANKS
Commercial banks are depository institutions that take deposits (such as checking or savings
deposits) and make loans (such as mortgage loans or auto loans). Commercial banks are also
SOLUTION MANUAL FOR
Financial Management Principles And Applications 14e Global Edition Sheridan
Titman
Part 1 Study Questions [Solutions to Study Questions]
Part Two Study Problems [Solutions to End-of-Chapter Problems]
netoformmolecules.**ChemicalBonds**:Discussionondifferenttypesofchemicalbonds(covalent,ionic,hydrogenbonds)andtheirroleinholdingatomstogetherinmoleculesandcompounds.**PropertiesofWater**:Explorationof
sapolarmolecule,itsuniqueproperties(highcohesion,adhesion,surfacetension,highspecificheatcapacity),anditsimportanceinbiologicalsystems.**Acids,Bases,andpH**:Definitionofacidsandbases,theirroleinchemicalreaction
heconceptofpHasameasureofhydrogenionconcentration.ImportanceofpHregulationinbiologicalprocesses.**OrganicMolecules**:Introductiontoorganicmoleculesessentialforlife,includingcarbohydrates,lipids,proteins,andn
acids.Structure,function,andbiologicalsignificanceofeachgroupofmolecules.**Carbohydrates**:Structureofcarbohydrates(monosaccharides,disaccharides,polysaccharides),theirrolesasenergysourcesandstructuralcompone
ells.**Lipids**:Classificationoflipids(fats,phospholipids,steroids),theirstructure,functions(energystorage,cellmembranes),androlesinbiologicalprocesses.**Proteins**:Structureofproteins(aminoacids,primary,secondary,te
andquaternarystructure),functions(enzymes,structuralproteins,antibodies),andproteinsynthesis.**NucleicAcids**:Structureandfunctionofnucleicacids(DNAandRNA),includingnucleotidestructure,DNAreplication,transcri
andtranslation.**EnzymesandCatalysis**:Roleofenzymesasbiologicalcatalysts,enzyme-
substrateinteractions,enzymespecificity,factorsinfluencingenzymeactivity,andregulationofenzymefunction.**EnergyandMetabolism**:Overviewofenergytransformationsinbiologicalsystems,includinganintroductiontome
m,energycarriers(ATP),andmetabolicpathways(e.g.,glycolysis,Krebscycle).**SummaryandKeyConcepts**:Thechapterconcludeswithasummaryofkeyconceptsrelatedtothechemicalbasisoflife,reinforcingunderstandingofth
dationalprinciplesofbiochemistryandtheirsignificanceinbiologicalprocesses.Chapter2providesacomprehensiveintroductiontothechemicalfoundationsthatunderpinbiologicalsystems.Itestablishesacrucialunderstandingofhow
icalprinciplesgovernthestructure,function,andinteractionsofbiologicalmoleculesessentialforlife.Thisknowledgeservesasabasisforfurtherexplorationintocellularprocesses,genetics,andphysiologicalmechanismscoveredinsub
ntchaptersofthetextbook.IfyouhavespecificquestionsaboutanyofthesetopicsorwouldlikemoredetailedinformationonaparticularaspectofChapter2,feelfreetoask!Chapter3Chapter3of"EssentialsofBiology"bySylviaMaderandM
lWindelspecht,titled"TheOrganicMoleculesofLife,"focusesspecificallyonthemajorclassesoforganicmoleculesessentialforbiologicalsystems.Here’sanoverviewofwhatyoumightfindinthischapter:**IntroductiontoOrganicM
s**:Definitionoforganicmoleculesandtheirimportanceasthebuildingblocksoflife.Overviewofthemajorc
Part 1 Study Questions
Chapter 1
Solutions to Study Questions
1-1. The solution to this problem is dependent upon the student‘s experiences.
1-2. There are three basic types of issues that are addressed by the study of finance:
a. What long-term investments should the firm undertake? This area of finance is
generally referred to as capital budgeting.
b. How should the firm raise money to fund these investments? The firm‘s funding
choices are generally referred to as capital structure decisions.
c. How can the firm best manage its cash flows as they arise in its day-to-day operations?
This area of finance is generally referred to as working capital management.
1-3. First, investors demand a minimum return for delaying consumption that must be greater
than the anticipated rate of inflation. If they didn‘t receive enough to compensate for
anticipated inflation, investors would purchase whatever goods they desired ahead of time.
There isn‘t much incentive to postpone consumption if your savings are going to decline in
terms of purchasing power.
Investment alternatives have different amounts of risk and expected returns. Investors
sometimes choose to put their money in risky investments because these investments offer
higher expected returns. The more risk an investment has, the higher will be its expected
return – that‘s because risk investors don‘t like risk, in particular, they don‘t like the chance
that they might lose their money. That makes risky investments less attractive, which
means that to attract investors, riskier investments must be priced to offer investors a higher
expected rate of return. This relationship between risk and expected return is shown in
Figure 1.3.
Notice that we keep referring to expected return rather than actual return. We may have
expectations of what the returns for investing will be, but we can‘t peer into the future and
see what those returns are actually going to be. Until after the fact, you are never sure what
, 2-2
the return on an investment will be. That is why General Motors bonds pay more interest
than U.S. Treasury bonds of the same maturity. The additional interest induces some
investors to take on the added risk of purchasing a General Motors bond.
EducationLaw education provides students with the knowledge of legal principles, case law, legal frameworks, and ethical issues. It prepares students for legal practice, with specializations that may include constitution
criminal law, corporate law, human rights law, or intellectual property law.2.2. Structure of Law ExamsLaw exams typically have a more structured format compared to business exams, often requiring students to
demonstrate knowledge of legal statutes, case law, and their ability to apply legal reasoning. Common types of law exams include:Essay/Problem-Based Questions: In law exams, students are often given hypothetical
scenarios (problem questions) and are asked to analyze the legal issues involved. These require students to apply specific legal principles and statutes to the facts presented in the scenario.Multiple Choice Questions (MC
Some law exams, particularly in foundational subjects like contract law or tort law, may feature MCQs designed to test knowledge of legal terminology and fundamental concepts.Long Answer Questions: These questio
may require students to elaborate on a particular legal principle or case, exploring various perspectives or discussing its implications in practice.2.3. Skills Tested in Law ExamsLegal Analysis and Application: Law exa
test a student’s ability to identify relevant legal issues, apply appropriate laws and precedents, and reach conclusions based on the facts presented. This requires a deep understanding of case law and statutory law.Critica
Thinking: Law students must think,includingkeyfigures,discoveries,andadvancementsinbiologicaltheories.**ToolsandTechniques**:
1-4. Incremental cash flows describe the total cash effect on a company. This involves assessing
the difference between total cash flow to the company with the cash flow, and without the
cash flow. A company can then value these cash flows to see if it is worth more with the
project or without it.
1-5. The three business forms are:
1. Sole Proprietorship.
2. Partnership.
3. Corporation.
1. Sole Proprietorship:
Advantage:
• Forming a sole proprietorship is very easy; there are no forms to file and no partners to
consult since the founder of the business is the sole owner.
Disadvantage :
• These organizations typically have limited access to the alternative sources of
financing. The owners of a sole proprietorship typically raise money by investing their
own funds, and by borrowing from a bank.
2. Partnership
Advantage :
• An important advantage of the partnership is that it provides access to equity,
or ownership, financing from multiple owners in return for partnership shares, or
units of ownership.
Disadvantage :
• Conflict on division of profits between partners.
3. Corporation.
Advantages :
• The shareholders‘ liability is confined to the amount of their investment in the
company. In other words, if the corporation goes under, the owners can only
lose their investment.
• The life of the business is not tied to the life of the founding owners. For example, the
inventor Thomas Edison founded General Electric (GE) over a century ago. Edison died
in 1931, but the corporation lives on.
Disadvantage :
• Though management is expected to make ethical decisions that reflect the best interests
of the firm‘s owners, this is not always the case. Indeed, managers often face situations
where their own personal interests differ from the interests of shareholders.
, 2-3
If you were to start a lawn mowing business for the summer, you‘d probably form a sole
proprietorship. That is the simplest one to form – you don‘t have to do anything. Moreover,
with a lawn mowing business the probability of a law suit is quite low, so the advantage of
limited liability is not particularly important.
1-6. The shareholders are the owners of the corporation. The management should run business
so as to maximize the shareholder wealth without being greedy for quick money generation
by unethical conducts and practices.
staple of business exams, case studies present students with real-world business scenarios and ask them to apply their knowledge to solve complex problems. Case studies evaluate students' ability to
think critically and make strategic decisions.Essay/Short Answer Questions: These types of questions test the student’s ability to explain and analyze business concepts in a detailed and coherent
manner.1.3. Skills Tested in Business ExamsCritical Thinking and Problem-Solving: Business exams often include case studies that challenge students to apply theoretical knowledge to real-life
situations. These tests assess decision-making skills, as well as the ability to evaluate various business alternatives.Quantitative Analysis: For subjects like finance or economics, business exams often
require students to perform calculations and interpret data. The ability to analyze financial statements, project revenues, and manage budgets is essential.Communication and Writing Skills: Business
exams may require students to present ideas clearly and concisely. Students must convey complex concepts in a way that demonstrates their understanding of business principles.1.4. Preparing for
Business ExamsPreparing for business exams involves mastering both conceptual understanding and practical application. Students are encouraged to study theories and frameworks but also to keep up-
to-date with current business trends. Case studies from leading businesses can be helpful, as they illustrate how business concepts are applied in real-world scenarios. Group discussions and practicing
sample case studies can aid in refining analytical skills.________________________________________2. Law Exams2.1. Overview of Law
1-7. Shareholder wealth maximization isn‘t the goal of every firm. Privately owned Newman‘s
Own, the makers of salad dressing, spaghetti sauces, and other food products, was
established in 1982 with the goal of making money for educational and charitable purposes.
Paul Newman‘s estate and the Newman‘s Own Foundation donate all profits and royalties
after taxes for educational and charitable purposes.
1-8. Extreme ethical lapses such as those evident in the Madoff Ponzi scheme may also break
laws and result in fines or imprisonment. In less extreme cases, deceptive accounting
practices or sales techniques once exposed lead to a loss of trust. Because individuals and
firms are reluctant to do business with those they mistrust, a reputation for unethical
behavior over the long run leads to adversarial relations with business partners, a loss of
customers, and destruction of the firm's value
**:Considerationofethicalissues,societalimplications,andapplicationsofbiologicalknowledgeinareassuchasmedicine,biotechnology,conservation,andenvironmentalsustainability.**Historical
ectives**:Overviewofsignificantmilestonesandcontributionsinthedevelopmentofbiologyasascientificdiscipline,includingkeyfigures,discoveries,andadvancementsinbiologicaltheories.**Too
Techniques**:Introductiontolaboratorytechniques,instruments,andmethodologiesusedinbiologicalresearch,suchasmicroscopy,DNAsequencing,biochemicalanalysis,andcomputationalbiolog
Chapter 2
Solutions to Study Questions
2-1. The ―Regardless of Your Major‖ box describes two types of retirement plans: defined
contribution and defined benefit. The ―defined‖ part of each name means that benefits are
specified, or defined; the difference between the two plans is in when those benefits are
defined. Defined benefit (DB) plans specify the amounts to be paid in retirement—that is,
the benefits the retiree will receive are specified. Thus, the sponsor of the plan promises to
make specific payments to the retiree, and then the sponsor accepts the responsibility for
investing a pool of assets now (or at least, before the covered person retires) to ensure that
those benefits in fact can be paid in the future. Managing pension assets to ensure future
payments is complicated, and companies these days prefer to offer defined contribution
plans, like 401(k) plans, instead of defined benefit plans. Defined contribution (DC) plans
specify the contributions that will be made to the plan (now), not the benefits that will be
paid at retirement. It‘s a lot easier to specify an amount to be paid today than it is to ensure
that one will be made in the future. With defined contribution plans, employees accept the
responsibility of investing their funds to ensure adequate resources in retirement, removing
, 2-4
that burden from employers. It‘s therefore not surprising that employers prefer defined
contribution plans, while employees who have defined benefit plans count themselves lucky.
2-2. The three players who interact in the financial markets are borrowers, savers, and financial
intermediaries.
staple of business exams, case studies present students with real-world business scenarios and ask them to apply their knowledge to solve complex problems. Case studies evaluate students' ability to think critically and
strategic decisions.Essay/Short Answer Questions: These types of questions test the student’s ability to explain and analyze business concepts in a detailed and coherent manner.1.3. Skills Tested in Business ExamsCriti
Thinking and Problem-Solving: Business exams often include case studies that challenge students to apply theoretical knowledge to real-life situations. These tests assess decision-making skills, as well as the ability to
evaluate various business alternatives.Quantitative Analysis: For subjects like finance or economics, business exams often require students to perform calculations and interpret data. The ability to analyze financial state
project revenues, and manage budgets is essential.Communication and Writing Skills: Business exams may require students to present ideas clearly and concisely. Students must convey complex concepts in a way that
demonstrates their understanding of business principles.1.4. Preparing for Business ExamsPreparing for business exams involves mastering both conceptual understanding and practical application. Students are encoura
study theories and frameworks but also to keep up-to-date with current business trends. Case studies from leading businesses can be helpful, as they illustrate how business concepts are applied in real-world scenarios. G
discussions and practicing sample case studies can aid in refining analytical skills.________________________________________2. Law Exams2.1. Overview of Law
Borrowers need money to help finance some specific purpose—a student loan to help pay
for college, an auto loan for a car, or a mortgage for a house. Savers have money that they
don‘t need for consumption today, so they set this money aside to use in the future.
Financial intermediaries bring the two together, channeling the savers‘ ―extra‖ money to
the borrowers for their immediate use. If the borrowers and savers could get together
themselves somehow, they could ―cut out the middleman‖ and save the intermediation
costs. This might sound good—but is it feasible? Financial intermediaries specialize in
evaluating the creditworthiness of borrowers, so they help ensure that savers‘ money is
channeled to borrowers who will repay. They also allow efficient aggregation of small
amounts of individual savings into blocks of loanable funds large enough to be useful to
borrowers.
lenders
$
FINANCIAL
INTERMEDIARIES
$
borrowers
2-3. As outlined in section 2.2 of the text, a financial intermediary is a firm that collects money
from savers, bundles it into attractive sizes with attractive terms, and lends it to borrowers.
The principal types of financial intermediaries in the United States are:
COMMERCIAL BANKS
Commercial banks are depository institutions that take deposits (such as checking or savings
deposits) and make loans (such as mortgage loans or auto loans). Commercial banks are also
