1. You work as a Corporate Risk Analyst at JP Morgan. You clients Peter and Angela are planning to start a new company and have come to you for advice. Angela is worried that companys managers may serve their own personal interests rather than maximizing the revenues of the company. Explain to Angela what this problem is called and prescribe one way of dealing with this problem.

2. Angela is unsure about the appropriate mix of debt and equity for the new firm. Explain to her the main criterion that corporations use to determine the appropriate debt-to-equity ratio.

3. Peter purchased bonds issued by Lipo Limited with a face value of 200,000 and a yield of 1.4 per cent per annum at the time of issue. The bonds pay a fixed coupon rate of 2.5 per cent per annum payable on a half-yearly basis. The bonds were issued with a term to maturity of seven years. Exactly one year has elapsed. Peter is concerned that Lipo is not progressing well and wants to sell his investment in the company. The bond is currently trading a yield of 1.8 per cent per annum. What is the current price of the bond? Show detailed calculations.