Chapter 2: Q.7 (page 97)
What is the difference between a mortgage and a mortgage-backed security?
Mortgage backed securities are more safe for investors than mortgage.
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If you suspect that a company will go bankrupt next year, which would you rather hold, bonds issued by the company or equities issued by the company? Why?
One of the factors contributing to the financial crisis of 2007–2009 was the widespread issuance of subprime mortgages. How does this demonstrate adverse selection
How does risk sharing benefit both financial intermediaries and private investors?
How can the adverse selection problem explain why you are more likely to make a loan to a family member than to a stranger?
Assume that a carpenter borrowed \(2,000 to be paid off in a year to finance a machine that would make him work faster. As a result, she is able to take on more projects and collect \)400 more earnings in the first year, after paying off the principal of $2,000. However, there is a 15% rental fee (interest) on her loan, which she also has to pay off. What is the carpenter’s net earnings for the first y
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