Financial Economics

1.) Explain why the market price of a company's stock does not necessarily equal its book value.

2.) Steptoe's bank account has a floating interest rate on certain deposits (the interest rate is adjusted every year). That is, every year the interest rate is adjusted. Four years ago, Steptoe deposited $35,000 into the bank account, when interest rates were 6 percent. The following year, the rate was 6.5 percent; last year, the rate was 8 percent; and this year, the rate fell to 7.5 percent. How much will be in Steptoes account at the end of the year? Assume annual compounding.

3.) Consider a retail store. What are three risks which that a business is exposed to? Who bears these risks?

4.) Consider a 10-year, 7 percent coupon bond that pays interest annually. The face value of the bond is $1,000.

What is the price of the bond if the yield to maturity is 7 percent?