Chapter 1: Question 2-10B (page 50)
What is meant by limited liability?
Limited liability- Owners or stockholders are not personally liable for firm’s obligations.
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Examine the balance sheet of commercial banks in Table 1.3. What is the ratio of real assets to total assets? What is that ratio for nonfinancial firms (Table 1.4)? Why should this difference be expected?
What is the difference between an IPO (initial public offering) and an SEO (seasoned equity offering)?
What are some differences between a unit investment trust and a closed-end fund?
Which security should sell at a greater price?
a. A 10-year Treasury bond with a 9% coupon rate or a 10-year T-bond with a 10% coupon.
b. A three-month expiration call option with an exercise price of \(40 or a three-month call on the same stock with an exercise price of \)35.
c. A put option on a stock selling at \(50 or a put option on another stock selling at \)60.
(All other relevant features of the stocks and options are assumed to be identical.)
What is the role of an underwriter? A prospectus?
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