3-11 3-12 3-6 3-1 How do financial markets that run freely and effi- ciently affect the standard of living in a country? 3-2 What does it mean for a financial market to be considered (a) informationally efficient and (b) economically efficient? 3-3 Do you think investors can earn abnormal re- turns in financial markets that are at least semis- trong-form efficient? 3-4 When the SEC approves a stock issue, it does not provide an opinion about the value of the stock. Do you think the SEC should give an opinion to investors on the appropriate value of the stock being issued? Explain. 3-5 What economic functions do financial interme- diaries perform? Do you think that the financial services industry will be more reregulated or deregulated in the future? Explain. 3-7 How do you think intermediaries' characteristics will change in the future? 3-8 How do financial institutions in the United States differ from financial institutions in other parts of the world? Why? 3-9 Express Courier (EC) needs $141 million to sup- port future growth. If it issues common stock to raise the needed funds, EC will have to pay its Investment banker 6 percent of the issue's total value. If EC can issue common stock at a market price of $80 per share, how many shares must be issued so that the company has $141 million af ter flotation costs to fund the planned growth? 3-10 Jewel Regal Cars (JRC) must raise $240 million to support operations. To do so, JRC plans to issue new bonds. Investment bankers have informed JRC that the flotation costs will be 4 percent of the total amount issued. If the market value of each bond is $1,000, how many bonds must RC 3-13 sell to net $240 million after flotation costs? As- sume that fractions of bonds cannot be issued. Bearskin Rugs needs $115 million to build a new distribution center. If it issues common stock to raise the funds, the issuance costs will be 8 per- cent of the total amount issued. If Bearskin can issue stock at $40 per share, how many shares of common stock must be issued so that it has $115 million after flotation costs to use to fund the construction of its distribution center? Persian Rugs needs $600 million to support growth next year. If it issues new common stock to raise the funds, the flotation (issuance) costs will be 4 percent. If Persian can issue stock at $125 per share, how many shares of common stock must be issued so that it has $600 mil- lion after flotation costs to use for its planned growth? Gerald Morris Corporation (GM) plans to issue bonds to raise $95 million. GM's investment banker will charge flotation costs equal to 5 percent of the total amount issued. The mar ket value of each bond at issue time will be $1,000. How many bonds rust GM sell to net $95 million after flotation tosts? Assume that fractions of bonds cannot be issued. Show how much of the total amount issued will consist of flotation costs and how much GM will receive after flotation costs are paid. Grand Energy Corporation (GE) plans to issue bonds to raise $345 million. GE's investment banker will charge flotation costs equal to 8 percent of the total amount issued. The market value of each bond at issue time will be $1,000. How many bonds must GE sell to net $345 mil- lion after flotation costs? Assume that fractions of bonds cannot be issued. Show how much of the total amount issued will consist of flotation costs and how much GE will receive after flota tion costs are paid. 3-14 3-11 3-12 3-6 3-1 How do financial markets that run freely and effi- ciently affect the standard of living in a country? 3-2 What does it mean for a financial market to be considered (a) informationally efficient and (b) economically efficient? 3-3 Do you think investors can earn abnormal re- turns in financial markets that are at least semis- trong-form efficient? 3-4 When the SEC approves a stock issue, it does not provide an opinion about the value of the stock. Do you think the SEC should give an opinion to investors on the appropriate value of the stock being issued? Explain. 3-5 What economic functions do financial interme- diaries perform? Do you think that the financial services industry will be more reregulated or deregulated in the future? Explain. 3-7 How do you think intermediaries' characteristics will change in the future? 3-8 How do financial institutions in the United States differ from financial institutions in other parts of the world? Why? 3-9 Express Courier (EC) needs $141 million to sup- port future growth. If it issues common stock to raise the needed funds, EC will have to pay its Investment banker 6 percent of the issue's total value. If EC can issue common stock at a market price of $80 per share, how many shares must be issued so that the company has $141 million af ter flotation costs to fund the planned growth? 3-10 Jewel Regal Cars (JRC) must raise $240 million to support operations. To do so, JRC plans to issue new bonds. Investment bankers have informed JRC that the flotation costs will be 4 percent of the total amount issued. If the market value of each bond is $1,000, how many bonds must RC 3-13 sell to net $240 million after flotation costs? As- sume that fractions of bonds cannot be issued. Bearskin Rugs needs $115 million to build a new distribution center. If it issues common stock to raise the funds, the issuance costs will be 8 per- cent of the total amount issued. If Bearskin can issue stock at $40 per share, how many shares of common stock must be issued so that it has $115 million after flotation costs to use to fund the construction of its distribution center? Persian Rugs needs $600 million to support growth next year. If it issues new common stock to raise the funds, the flotation (issuance) costs will be 4 percent. If Persian can issue stock at $125 per share, how many shares of common stock must be issued so that it has $600 mil- lion after flotation costs to use for its planned growth? Gerald Morris Corporation (GM) plans to issue bonds to raise $95 million. GM's investment banker will charge flotation costs equal to 5 percent of the total amount issued. The mar ket value of each bond at issue time will be $1,000. How many bonds rust GM sell to net $95 million after flotation tosts? Assume that fractions of bonds cannot be issued. Show how much of the total amount issued will consist of flotation costs and how much GM will receive after flotation costs are paid. Grand Energy Corporation (GE) plans to issue bonds to raise $345 million. GE's investment banker will charge flotation costs equal to 8 percent of the total amount issued. The market value of each bond at issue time will be $1,000. How many bonds must GE sell to net $345 mil- lion after flotation costs? Assume that fractions of bonds cannot be issued. Show how much of the total amount issued will consist of flotation costs and how much GE will receive after flota tion costs are paid. 3-14