Solution Manual For Investments, 12th Edition

Solution Manual For Investments, 12th Edition makes solving textbook questions easier with expertly crafted solutions.

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CHAPTER 1: THE INVESTMENT ENVIRONMENT1-1CHAPTER 1:THEINVESTMENTENVIRONMENTPROBLEM SETS1.While it is ultimatelytrue that real assets determine the material well-being of aneconomy, financial innovation in the form of bundling and unbundling securitiescreates opportunities for investors to form more efficient portfolios.Bothinstitutional andindividualinvestorscan benefit when financial engineering createsnew products that allow them to manage their portfolios of financial assets moreefficiently. Bundling and unbundling create financial products with new propertiesand sensitivities to various sources of riskthatallowsinvestors toreduce volatilitybyhedgingparticular sources of risk more efficiently.2.Securitization requires access to a large number of potential investors.To attractthese investors, the capital market needs:1.a safe system of business laws and low probability of confiscatorytaxation/regulation;2.a well-developed investment banking industry;3.a well-developed system of brokerage and financial transactions;and4.well-developed media, particularly financial reporting.These characteristics are found in (indeed make for) a well-developed financialmarket.3.Securitization leads to disintermediation; that is, securitization provides a meansfor market participants to bypass intermediaries.For example, mortgage-backedsecurities channel funds to the housing market without requiring that banks orthrift institutions make loans from their own portfolios.Securitization works welland can benefit many, but only if the market for these securities is highly liquid.As securitization progresses,however, andfinancial intermediariesloseopportunities, theymust increase otherrevenue-generatingactivities such asproviding short-term liquidity to consumers and small business and financialservices.4.The existence of efficient capital markets and the liquid trading of financial assetsmakeit easy for large firms to raise the capital needed to finance their investmentsin real assets.IfFord, for example, could not issue stocks or bonds to the generalpublic, it would have a far more difficult time raising capital.Contraction of thesupply of financial assets would make financing more difficult, thereby increasingthe cost of capital.A higher cost of capitalresults inless investment and lowerreal growth.

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Finance

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Investments by Zvi Bodie, Alex Kane...

Solution Manual For Investments, 12th Edition

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