Financial Economics

2426 words 10 pages
Assignment 1
Assignment 1 is due after you complete Lessons 1 to 4. It is worth 20% of your final grade.

Prepare your responses to these assignment problems in a word processing file; put financial data in a spreadsheet file. As you complete the assignment problems for each lesson, add your responses to these files.
Do not submit your answers for grading until you have completed all parts of Assignment 1.

Note: In assignments, show all calculations to 4 decimal places.
Lesson 1: Assignment Problems

1.1 Households make four kinds of economic decisions (textbook, pp. 4–5). Suppose you have two households with the same income. Household A has one income earner and Household B has two income earners.
How would the four types
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A partnership is a firm with two or more owners, who share equity in the business, and they also share profits and losses. Moreover, all partners has unlimited liabilities. It's also possible to limit the liabilities for some partners, but there must be at least one of the partners, called general partner, has unlimited liabilities for the debts of the firm.

Do not submit these questions for grading until you have completed all parts of Assignment 1, due after Lesson 4.
Lesson 2: Assignment Problems
2.1 Adam Smith is often called the father of economics. His famous book, The Wealth of Nations, talks about an “invisible hand” which automatically allocates goods to the persons most able to put them to good use. The invisible hand operates through the price mechanism for goods and services, so that individuals who trade on the market, while seeking only their own good, are actually efficiently allocating society’s resources.

His ideas, if applied to modern capital markets, imply that these markets would efficiently allocate investment capital to the firms that would use the capital most efficiently in producing goods and services for society. But this would happen only if markets were left to operate without state intervention.

Do you think modern governments should leave capital markets unregulated? Why or why not? (6 marks)

2.2 Consider a business firm, organized as a proprietorship, which

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