2. a. Shareholder A sold 500 shares of XYZ stock on the New York Stock Exchange. Is this

transaction a primary market transaction or a secondary market transaction? Why?

b. Youve probably noticed coverage in the financial press of an initial public offering (IPO)

of a companys securities. Is an IPO a primary market transaction or a secondary market

transaction? Why?

3. If profit margin increases, what will happen to return to equity? If debt-equity ratio decreases,

what will happen to return to equity?

4. Klingon Widgets, Inc. purchase new cloaking machinery three years ago for 5 million. The machinery can be sold to the Romulans today for 3.5 million. Klingons current balance sheet shows net fixed assets of 3.2 million, current liabilities of $1 million, and net working capital of $1.2 million. If the current assets are liquidated today, the company would receive $2.5 million. What is the market value of Klingons fixed assets today? What is the difference between the book value and the market value of Klingons current assets today?

5. For given the time period, as the interest rate increases, what will happen to the present value and the future value, respectively?

6. Wilt invests $50,000 at 8% when he is 25 years old. Katie invests $50,000 at 8% when she is 40 years old. Both investments compound interest annually. Both Wilt and Katie retire at age 60. Who will have more money when they retire? Why?