BUS3062 Week 1

Respond to the following questions using grammatically correct language.

1. Martha Stewart was accused of insider trading for selling ImClone stocks a day before the stock went down in value. The charges of securities fraud were thrown out but she served 5 months in prison for obstruction of justice and lying to investigators. Do you think what Martha did (insider trading) was unethical from financial management point of view? Explain.

2. Explain why wealth maximization is more desirable than profit maximization as a goal for any company.

3. Explain the shape of the yield curve with respect to the unbiased expectations and liquidity premium theories.

4. Imagine a particular security's default risk premium is 2 percent. For all securities, the inflation risk premium is 1.75 percent and the real risk-free rate is 3.50 percent. The security's liquidity risk premium is 0.25 percent and maturity risk premium is 0.85 percent. The security has no special covenants. Calculate the security's equilibrium rate of return. Show your work.