1. Explain what is meant by agency relationships and agency costs. ( **5** points)

2. You own shares representing 10% of Textra Company. You paid $500,000 for these shares 5 years ago. The corporation has 9 other shareholders each with a 10% equity position in the company. The corporation has grown over the past 5 years and your shares are now worth $1,000,000. The corporation recently issued bonds in the amount of $2,000,000 to fund an acquisition. The acquisition was a disaster and the company is now unable to meet its interest commitments and is on the verge of bankruptcy. There are no other debts. As a 10% shareholder, what is the maximum potential loss you could have if the company declares bankruptcy? Explain. How would your answer change if the company was a general partnership instead? ( **5 **points)

3. At a party a friend told you he had invested $10,000, and the investment has tripled in value! If the investment earned 11.61% compounded annually, how many years did it take your friend to reach this amount? ( **3** points)

4. Ten years ago, you and your brother each received $1000 cash from a relative for Christmas. You immediately invested the cash in an investment that earned 6% per year. Your brother waited a year before investing his money. At what annual rate of interest would your brother have had to earn on his investment in order to achieve the same value as you received today. ( **6** points)

5. A leading broker has advertised an investment that will triple your money in nine years. That is, if you invest $333.33 today, it will pay you $1,000 at the end of nine years. What annual rate of return will you earn on this investment? (**3** points)

6. A) Alex is saving to go on a trip to Australia five years from today. She has determined that she will need to have $8,000 saved to take the trip. How much will she need to invest today in order to have $8,000 in five years? Assume she can earn the following interest rates over the next five years: ( **4** points)

First year: 3%, Second year 3.5%, Third year: 4%, Fourth year: 5% and Fifth year: 5%

B) Instead of investing the money today, she has decided to wait two years to invest the money. How much will she need to invest, two years from today, in order to have $8,000 five years from today? (**4** points)

Subject | Mathematics |

Due By (Pacific Time) | 09/18/2013 07:00 am |

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