Is the AICPA's Code of Conduct applicable to accountants who are licensed outside the United

States?

In Star Wars, Grand Master Luke Skywalker modified the Jedi Code as follows upon
reestablishing the Jedi Order in the Galaxy: Jedi are the guardians of peace in the galaxy. Jedi
use their powers to defend and to protect. Jedi respect all life, in any form. Jedi serve others
rather than ruling over them, for the goo

Establish and justify a motivational program based on one or a combination of motivation

theories to deal with the situation as it exists at the end of the case.

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How well did Jim Donavon "play" things in terms of his new appointment? What mistakes did
he make and why did he make them?

What does it mean for a corporation to have a triple bottom line?

Most ethics codes require accountants to act in "the public interest." Assume that a large,
publicly traded automobile manufacturer prepares financial statements that require restatement
due to a material error made by the company's accounting staff. What subcategories of "the
public," such as investors, were owed a du

Three shots rang out, striking Al and his son Jeff. Neither died...yet. It'd be just a matter of time.
As the sight of splattered crimson dominated the senses, all I could think of was, "What journal
entries might be needed?" The facts, as I later came to discover them: Al Parsons and his equal
partner, brother Lou,

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What would you do if you were in her position?

Wide variations exist around the world in the permissibility and implementation of the death
penalty. Some countries ban it altogether, some countries permit it but rarely implement it, and
some countries use it regularly. Even within the United States, similar differences exist, with
some states banning it and some st

To treat chickens more humanely, Californians voted by popular referendum to enact a law
requiring minimum cage sizes for egg-laying chickens. Other large egg-producing states, such as
Iowa, Nebraska, and Alabama, have not enacted such laws. a. Is the minimum size of an egg-
laying hen's cage an ethical issue? b. Su

A licensed CPA in Arkansas does not want to be bound by one of the rules expressed in the
AICPA Code of Professional Conduct. Can she avoid being subject to the policies and rules of
this Code?
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If you were Shane, what type of research design would you use to test this program? Why?

To what extent are power and politics already at play in this situation?

How do you explain the situation described in the last paragraph of the case? How could this
outcome have been avoided by appropriate managerial actions?

Do you think Dinah was right? Why or why not? If you were she and you had to do it all over
again, would you do anything differently? If so, what and why?

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A runaway trolley will kill five people standing on its tracks if the trolley continues on its present
course. However, if you push an electronic switch, you can shift the trolley to an alternate set of
tracks where one person standing on its tracks will be killed. Should you push the switch?

In what ways does Trader Joe's demonstrate the importance of each responsibility in the
management process - planning, organizing, leading and controlling?

A robber steals Ferrari cars from rich kids who bought these cars with inherited money. When
the robber resells the stolen cars, he donates 75% of the proceeds to the America Cancer Society
and uses the remaining proceeds to care for his aged mother who lives in a nursing home. a. Are
the robber's actions ethical? b

How would the design actually be implemented in this hospital setting?

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How could an understanding of the stages of group development assist Christine in leadership
situations such as this one?

In the 1960s, most civil rights attorneys were men and most nurses were women. Do these facts
support Kohlberg's views on higher-level moral development or Gilligan's views?

A CPA firm wants to gain a competitive recruiting advantage over its peers. Its lead recruiter has
started giving $2,000 signing bonuses to brilliant 18-year-old high school graduates who plan to
major in accounting during their upcoming college years. In return for these bonuses, students
must agree that, if they deci

What do you think Mary will do now? Later?

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Use the decision-making model presented in the chapter to map the decisions being made in
these situations. Identify how, where, and why different decisions might be made.

Consider the situation where the manager changed the time period required to receive free food
and drink from 6 to 12 hours of work. Try to apply each of the motivational approaches to
explain what happened. Which of the approaches offers the most appropriate explanation? Why?

How would you describe an institution-based view of global business?

What are her strengths? Her weaknesses? What is the basis for your assessment?

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What would be your research hypothesis? What variables would you need to measure to provide
data that could test this hypothesis? How would you gather these data?

If you were Jennifer, would you have accepted the job?

To qualify for a working capital loan, a bank requires loan applicants to satisfy a specified debt-
to-equity ratio. After reviewing your employer's trial balance, you realize that the company had
insufficient owners' equity to meet bank requirements. You consider the bank's ratio rules to be
unnecessarily strict, so yo

During a job interview, a recruiter asked a graduating student if she ranks the recruiter's company
as "her first choice." The student unhesitatingly replies "yes," even though this potential
employer actually is her third choice. Was the student's answer ethical?

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A well-regarded accounting firm has a policy of giving a $1,000 commitment fee to brilliant
freshman accounting majors if they agree to not interview with named competitor firms while
they are still enrolled in school. Is this firm's policy ethical?

How might one of the actors in the incident use power and politics to achieve advantage in the
situation described?

Does Trader Joe's response to the Traitor Joe's campaign demonstrate contingency thinking?
Why or why not?

If you were president, what would you do?

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What lessons for developing high-performance organizational cultures can these two cases
provide for other firms that aren't family run?
Under Chapter 7 bankruptcy rules, most debts are cancelled when an insolvent individual with a
modest income successfully petitions for bankruptcy. A person is entitled to obtain a discharge
from debts every seven years. After debt discharge, creditors are barred from exercising their
right to ever enforce outstanding

What is the major problem facing Jennifer?

A corporation originally was formed with only common stock outstanding. If a company suffers
financial distress or goes bankrupt, preferred stock holders receive full repayment of their
investments before any amounts are paid to common stockholders. Would it be ethical for this
corporation to issue preferred stock?

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Refer to information in Exercise EB-19. Exercise EB-19. Apr. 2 Purchased merchandise

inventory on credit terms of 3/10, n/60 from Vanderbilt Co., $2,400. 5 Issued check no. 820 to
purchase equipment for cash, $3,600. 11 Purchased merchandise inventory for cash, $750,
issuing check no. 821. 12 Issued check no. 822

The general ledger of Finnish Lake Golf Shop includes the following selected accounts, along
with their account numbers: Transactions in December that affected purchases and cash
payments were as follows: Dec. 2 Purchased merchandise inventory on credit from Tighe,
$4,100. Terms were 3/10, n/30. 3 Paid monthly rent,

a. Given the preceding information, assess how the demand for and the supply of loanable funds
would be affected (if at all), and predict the future direction of interest rates. b. You can obtain a
one-year loan at a fixed-rate of 8 percent or a floating-rate loan that is currently at 8 percent but
would be revised ev

Why do you think securities are commonly standardized? Explain why some financial flows of
funds cannot occur through the sale of standardized securities. If securities were not
standardized, how would this affect the volume of financial transactions conducted by brokers?

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How does the painters' job score on the core job characteristics before and after the changes were
made? How can the positive impact of the job redesign be explained?

Assume there is a sudden expectation of lower interest rates in the future. What would be the
effect on the shape of the yield curve? Explain.

The cash receipts journal of Silver Plastics follows: Silver's general ledger includes the following
selected accounts, along with their account numbers: Number _________________
Account_____________ 110 ............................. Cash 115 ............................. Accounts
Receivable 118 ..................
When economic crises in countries are due to a weak economy, local interest rates tend to be
very low. However, if the crisis was caused by an unusually high rate of inflation, interest rates
tend to be very high. Explain why.

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Assume that the yield curves in the United States, France, and Japan are flat. If the U.S. yield
curve suddenly becomes so positively sloped, do you think the yield curves in France and Japan
would be affected? If so, how?

During the credit crisis, U.S. interest rates were extremely low, which enabled businesses to
borrow at a low cost. Holding other factors constant, this should result in a higher number of
feasible projects, which should encourage businesses to borrow more money and expand. Yet,
many businesses that had access to loana

Review your results from Short Exercise SB-8. Requirements 1. Total each column of the
purchases journal. 2. Open the following four-column accounts in the accounts payable
subsidiary ledger: Accounts Payable-Bird Co.; Accounts Payable-Mayer Co.; Accounts Payable-
Silly Co. Post the transactions to the accounts payab

a. Explain why Carson should be very interested in future interest rate movements. b. Given
Carson's expectations, do you think that the company anticipates that interest rates will increase
or decrease in the future? Explain. c. If Carson's expectations of future interest rates are correct,
how would this affect i

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Estimate the real interest rate over the last year. If financial market participants overestimate
inflation in a particular period, will real interest rates be relatively high or low? Explain.

Jayhawk Forecasting Services analyzed several factors that could affect interest rates in the
future. Most factors were expected to place downward pressure on interest rates. Jayhawk also
expected that although the annual budget deficit was to be cut by 40 percent from the previous
year, it would still be very large. T

How might expectations of higher global oil prices affect the demand for loanable funds, the
supply of loanable funds, and interest rates in the United States? Will this affect the interest rates
of other countries in the same way? Explain.

In some periods such as the credit crisis, liquidity in financial markets declines dramatically, and
many surplus units no longer participate in financial markets. Yet, if the markets are efficient,
prices should adjust to existing economic conditions, and one might argue that investors should
always be willing to part

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Explain the meaning of efficient markets. Why might we expect markets to be efficient most of
the time? In recent years, several securities firms have been guilty of using inside information
when purchasing securities, thereby achieving returns well above the norm (even when
accounting for risk). Does this suggest that

The purchases journal of Southeastern Publishing Company follows: Requirements 1. Total each
column of the purchases journal. 2. Open four-column ledger accounts for Merchandise
Inventory (118), Office Supplies (120), Equipment (150), and Accounts Payable (211). Post to
these accounts from the purchases journal. Use

European debt markets have become integrated over time, so that institutional investors (such as
commercial banks) commonly purchase debt issued in other European countries. When the
government of Greece experienced problems in meeting its debt obligations in 2015, some
investors became concerned that the crisis would

Suppose the real interest rate is 6 percent and the expected inflation is 2 percent. What would
you expect the nominal rate of interest to be?

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What is the function of a mutual fund? Why are mutual funds popular among investors? How
does a money market mutual fund differ from a stock or bond mutual fund?

Distinguish between perfect and imperfect security markets. Explain why the existence of
imperfect markets creates a need for financial intermediaries.

What is the difference between the nominal interest rate and real interest rate? What is the logic
behind the implied positive relationship between expected inflation and nominal interest rates?

Consider how economic conditions affect the default risk premium. Do you think the default risk
premium will likely increase or decrease during this semester? How do you think the yield curve
will change during this semester? Offer some logic to support your answers.

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a. "The flight of funds from bank deposits to U.S. stocks will pressure interest rates." b. "Since
Japanese interest rates have recently declined to very low levels, expect a reduction in U.S.
interest rates." c. "The cost of borrowing by U.S. firms is dictated by the degree to which the
federal government spends mor

You need to choose between investing in a one-year municipal bond with a 7 percent yield and a
one-year corporate bond with an 11 percent yield. If your marginal federal income tax rate is 30
percent and no other differences exist between these two securities, which would you invest in?
Jun. 1 Sold merchandise inventory on account to Fran Jack, $1,220. Cost of goods, $980. Invoice
no. 101. 8 Sold merchandise inventory on account to Ireland Frank, $2,025. Cost of goods,
$1,640. Invoice no. 102. 13 Sold merchandise inventory on account to Jake Thompson, $420.
Cost of goods, $210. Invoice no. 103. 28

Oct. 1 Purchased merchandise inventory on account with credit terms of 4/10, n/30 from Mayer
Co., $2,200. 11 Purchased office supplies on account from Bird Co., $600. Terms were n/EOM.
24 Purchased furniture on account with credit terms of 3/10, n/60 from Silly Co., $900. Use the
following purchases journal to recor

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If a downward-sloping yield curve is mainly attributed to segmented markets theory, what does
that suggest about the demand for and supply of funds in the short-term and long-term maturity
markets?

Explain why interest rates changed as they did over the past year.

If barriers to international securities markets are reduced, will a country's interest rate be more or
less susceptible to foreign lending and borrowing activities? Explain.

Assume Peaceful Spring Company uses the perpetual inventory system. The general ledger of
Peaceful Springs Company includes the following selected accounts, along with their account
numbers: Sales and cash receipts transactions in November were as follows: Nov. 2 Sold
merchandise inventory on credit, terms n/30, to I

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In what way could the international flow of funds cause a decline in interest rates?

Why might you expect interest rate movements of various industrialized countries to be more
highly correlated in recent years than in earlier years?

Assume Sparkling Springs Glass Company uses the perpetual inventory system. The general
ledger of Sparkling Springs Glass Company includes the following selected accounts, along with
their account numbers: Sales and cash receipts transactions in July were as follows: Jul. 2 Sold
merchandise inventory on credit, terms

What is the meaning of the forward rate in the context of the term structure of interest rates?
Why might forward rates consistently overestimate future interest rates? How could such a bias
be avoided?

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Interest rates are influenced by various factors reflecting the demand for funds and the supply of
funds available in the credit markets. Write a short essay in which you identify the key factors
that changed the demand for and supply of funds during the credit crisis and offer an explanation
for why those factors caus

Apr. 2 Purchased merchandise inventory on credit terms of 3/10, n/60 from Vanderbilt Co.,
$2,400. 5 Issued check no. 820 to purchase equipment for cash, $3,600. 11 Purchased
merchandise inventory for cash, $750, issuing check no. 821. 12 Issued check no. 822 to pay
Vanderbilt Co. net amount owed from Apr. 2. 19 Pur

The sales and cash receipts journals of Caverly Office Products include the following entries:
Identify the missing information in the cash receipts journal for those transactions listed. All
credit sales are terms n/30. Assume all the accounts are paid in full. Also, total the columns in
the cash receipts journal and

Different types of financial institutions commonly interact. They provide loans to each other, and
take opposite positions on many different types of financial agreements, whereby one will owe
the other based on a specific financial outcome. Explain why their relationships cause concerns
about systemic risk.

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a. "An upward-sloping yield curve persists because many investors stand ready to jump into the
stock market." b. "Low-rated bond yields rose as recession fears caused a flight to quality." c.
"The shift from an upward-sloping yield curve to a downward-sloping yield curve is sending a
warning about a possible recessio

Assume that (1) investors and borrowers expect that the economy will weaken and that inflation
will decline, (2) investors require a small liquidity premium, and (3) markets are partially
segmented and the Treasury currently has a preference for borrowing in short-term markets.
Explain how each of these forces would af

Use the loanable funds framework to explain how European economic conditions might affect
U.S. interest rates.

Assume that countries A and B are of similar size, that they have similar economies, and that the
government debt levels of both countries are within reasonable limits. Assume that the
regulations in country A require complete disclosure of financial reporting by issuers of debt in
that country, but that regulations in

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Didrikson Rubin, the auditor of Red Barn Farm Equipment, was verifying cash payments to
vendors for the past several months. She noticed that several checks had been paid to a specific
vendor, but she couldn't find a record of the transactions in the computerized system. Didrikson
suspects that an employee is issuing c

Jul. 5 Sold merchandise inventory for cash, $1,700. Cost of goods, $1,400. 12 Collected interest
revenue of $2,050. 18 Received cash from Heidi Next, $1,200, on account. There was no
discount. 29 Received $5,300 from Mitch Dylan in full settlement of his account receivable
including sales discounts forfeited of $20.

Explain how credit rating agencies have changed their process following criticism of their ratings
during the credit crisis.

Atlanta Computer Security uses the perpetual inventory system and makes all credit sales on
terms of n/30. During March, Atlanta completed these transactions: Mar. 2 Issued invoice no.
191 for sale on account to L. E. Kingston, $3,000 (cost, $800). 3 Purchased merchandise
inventory on credit terms of 3/10, n/60 from

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Offer an argument for why a political regime that favors a large government will cause interest
rates to be higher. Offer at least one example of why a political regime that favors a large
government will cause interest rates to be lower [Hint: Recognize that the government
intervention in the economy can influence oth

Offer an argument for why the terrorist attack on the United States on September 11, 2001 could
have placed downward pressure on U.S. interest rates. Offer an argument for why that attack
could have placed upward pressure on U.S. interest rates.

A vendor account in the accounts payable subsidiary ledger of Frost Company follows. Describe
the three posted transactions.

During some crises, investors shift their funds out of the stock market and into money market
securities for safety, even if they do not fear rising interest rates. Explain how and why these
actions by investors affect the yield curve. Is the shift due to the expectations theory, liquidity
premium theory, or segmented

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Why do forecasts of interest rates differ among experts?

a. Assume that as of today, the annualized two-year interest rate is 13 percent, while the one-year
interest rate is 12 percent. Use this information to estimate the one-year forward rate. b. Assume
that the liquidity premium on a two-year security is 0.3 percent. Use this information to estimate
the one-year forward
Explain how the privatization of companies in Europe can lead to the development of new
securities markets.

Do investors in high tax brackets or those in low tax brackets benefit more from tax-exempt
securities? Why? Do municipal bonds or corporate bonds offer a higher before-tax yield at a
given point in time? Why? Which has the higher after-tax yield? If taxes did not exist, would
Treasury bonds offer a higher or lower yie

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Integrate the roles of accounting, regulations, and financial market participation. That is, explain
how financial market participants rely on accounting, and why regulatory oversight of the
accounting process is necessary.

If the segmented markets theory causes an upward-sloping yield curve, what does this imply? If
markets are not completely segmented, should we dismiss the segmented markets theory as even
a partial explanation for the term structure of interest rates? Explain.

a. "The price of IBM stock will not be affected by the announcement that its earnings have
increased as expected." b."The lending operations at Bank of America should benefit from strong
economic growth." c. "The brokerage and underwriting performance at Goldman Sachs should
benefit from strong economic growth."

If liquidity and interest rate expectations are both important for explaining the shape of a yield
curve, what does a flat yield curve indicate about the market's perception of future interest rates?

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In some countries where there is high inflation, the annual interest rate is more than 50 percent,
while in other countries such as the U.S. and many European countries, the annual interest rates
are typically less than 10 percent. Do you think such a large interest rate differential is primarily
attributed to the diff

Explain why mortgage defaults during the credit crisis adversely affected financial institutions
that did not originate the mortgages. What role did these institutions play in financing the
mortgages?

Explain why the credit crisis caused a lack of liquidity in the secondary markets for many types
of debt securities. Explain how such a lack of liquidity would affect the prices of the debt
securities in the secondary markets.

The key components of a market interest rate are the risk-free rate and the credit risk premium.
During the credit crisis, these two components changes substantially, but in different ways. The
changes in these components illustrated how the Federal Reserve can intervene in the financial
markets to improve financial co
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a. Given the shift in the yield curve, does it appear that firms increased or decreased their
demand for long-term funds over the last six months? b. Interpret what the shift in the yield
curve suggests about the market's changing expectations of future interest rates. c. Recently, an
analyst argued that the underlyi

Suppose that the Treasury decided to finance its deficit with mostly long-term funds. How could
this decision affect the term structure of interest rates? If short-term and long-term markets are
segmented, would the Treasury's decision have a more or less pronounced impact on the term
structure? Explain.

Explain the primary use of funds for commercial banks versus savings institutions.

The interest rate on a one-year loan can be decomposed into a one-year risk-free (free from
default risk) component and a risk premium that reflects the potential for default on the loan in
that year. A change in economic conditions can affect the risk-free rate and the risk premium.
The risk-free rate is normally affe

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Assume that if the U.S. dollar strengthens, it can place downward pressure on U.S. inflation.
Based on this information, how might expectations of a strong dollar affect the demand for
loanable funds in the United States and U.S. interest rates? Is there any reason to think that
expectations of a strong dollar could al

Explain the meaning of surplus units and deficit units. Provide an example of each. Which types
of financial institutions do you deal with? Explain whether you are acting as a surplus unit or a
deficit unit in your relationship with each financial institution.

Review your results from Short Exercise SB-4. Requirements 1. Total each column of the sales
journal. 2. Open the following four-column accounts in the accounts receivable subsidiary
ledger: Accounts Receivable-Frank; Accounts Receivable-Jack; Accounts Receivable-
Thompson; Accounts Receivable-West. Post the transact

Assume that the yield curve for Treasury bonds has a slight upward slope, starting at 6% for a
10-year maturity and slowly rising to 8% for a 30-year maturity. Create a yield curve that you
believe would exist for A-rated bonds. Create a yield curve that you believe would exist for B-
rated bonds.

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Describe how a country's laws can influence the degree of its financial market liquidity.
Review your results from Short Exercise SB-6. Requirements 1. Total each column of the cash
receipts journal. 2. Open the following four-column accounts in the accounts receivable
subsidiary ledger: Accounts Receivable-Dylan, Bal. $5,280; Accounts Receivable-Next, Bal.
$2,250. Post the transactions to the accounts r

Explain how a yield curve would shift in response to a sudden expectation of rising interest rates,
according to the pure expectations theory.

Assume that as of today, the annualized interest rate on a three-year security is 10 percent, while
the annualized interest rate on a two-year security is 7 percent. Use this information to estimate
the one-year forward rate two years from now.

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War tends to cause significant reactions in financial markets. Why might a war in the Middle
East place upward pressure on U.S. interest rates? Why might some investors expect a war like
this to place downward pressure on U.S. interest rates?

Assume that your publicly traded company attempts to be completely transparent about its
financial condition, and provides thorough information about its debt, sales, and earnings every
quarter. Explain why there still may be much uncertainty surrounding your company's stock
price.

a. In what way is Carson a surplus unit? b. In what way is Carson a deficit unit? c. How might
finance companies facilitate Carson's expansion? d. How might commercial banks facilitate
Carson's expansion? e. Why might Carson have limited access to additional debt financing
during its growth phase? f. How might sec

Tulsa Computer Security uses the perpetual inventory system and makes all credit sales on terms
of n/30. Tulsa completed the following transactions during May: May 2 Issued invoice no. 913
for sale on account to K. D. King, $2,200 (cost, $1,500). 3 Purchased merchandise inventory on
credit terms of 3/10, n/60 from He

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The general ledger of Shiny Lake Golf Shop includes the following selected accounts, along with
their account numbers: Transactions in December that affected purchases and cash payments
follow: Dec. 2 Purchased merchandise inventory on credit from Tomas, $4,500. Terms were
1/10, n/30. 3 Paid monthly rent, debiting R

What are the functions of securities firms? Many securities firms employ brokers and dealers.
Distinguish between the functions of a broker and those of a dealer, and explain how each is
compensated.
Some countries do not have well established markets for debt securities or equity securities. Why
do you think this can limit the development of the country, business expansion, and growth in
national income in these countries?

Financial institutions are subject to regulations to ensure that they do not take excessive risk and
they can safely facilitate the flow of funds through financial markets. Nevertheless, during the
credit crisis, individuals were concerned about using financial institutions to facilitate their
financial transactions. W

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Crystal Clear Cleaning has decided that, in addition to providing cleaning services, it will sell
cleaning products. Crystal Clear uses the perpetual inventory system. During December 2018,
Crystal Clear completed the following transactions: Dec. 2 Purchased 1,000 units of inventory
for $4,000 on account from Sparkle

Suppose that Treasury bills are currently paying 9 percent and the expected inflation is 3 percent.
What is the real interest rate?

Look in a recent business periodical for news about a recent financial transaction that involves
two financial institutions. For this transaction, determine the following: a. How will each
institution's balance sheet be affected? b. Will either institution receive immediate income from
the transaction? c. Who is the

Consider the prevailing conditions for inflation (including oil prices), the economy, the budget
deficit, and the Fed's monetary policy that could affect interest rates. Based on these conditions,
do you think interest rates will likely increase or decrease during this semester? Offer some logic
to support your answer.

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a. What are the more likely alternatives for you to borrow $70 million? b. Assuming that you
decide to issue debt securities, describe the types of financial institutions that may purchase these
securities. c. How do individuals indirectly provide the financing for your firm when they
maintain deposits at depository

Explain why financial markets may be less liquid if companies are not forced to provide accurate
financial reports.

Should increasing money supply growth place upward or downward pressure on interest rates?

a. Assume that the market's expectations for the economy are similar to those of Carson. Also
assume that the yield curve is primarily influenced by interest rate expectations. Would the yield
curve be upward sloping or downward sloping? Why? b. If Carson could obtain more debt
financing for 10-year projects, would it
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Consider a period in which stock prices are very high, such that investors begin to think that
stocks are overvalued and their valuations are very uncertain. If investors decide to move their
money into much safer investments, how do you think this would affect general interest rate
levels? In your answer, use the loan

Explain what is meant by interest elasticity. Would you expect federal government demand for
loanable funds to be more or less interest-elastic than household demand for loanable funds?
Why?

Commercial banks use some funds to purchase securities and other funds to make loans. Why are
the securities more marketable than loans in the secondary market?

If the federal government planned to expand the space program, how might this affect interest
rates?

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Soon after the United States revealed the discovery of a single mad cow in December 2003, more
than 40 countries slapped an embargo on U.S. beef. In addition, some U.S. consumers stopped
eating beef. In the three weeks after the discovery, the quantity sold increased by 43% during the
last week of October 2003, and th

What factors influence the shape of the yield curve? Describe how financial market participants
use the yield curve.

A customer account in the accounts receivable subsidiary ledger of Leger Old Company follows:
Describe the three posted transactions.

Compare the main sources and uses of funds for finance companies, insurance companies, and
pension funds.

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Classify the types of financial institutions mentioned in this chapter as either depository or
nondepository. Explain the general difference between depository and nondepository institution
sources of funds. It is often stated that all types of financial institutions have begun to offer
services that were previously of

You are the manager of 3D Designs-a large imaging company that does graphics and web design
work for companies. You and your only competitor are contemplating the purchase of a new 3-D
imaging device. If only one of you acquires the device, that firm will earn profits of $20 million
and the other firm will lose $9 mill
Do you care whether a 15¢ tax per gallon of milk is collected from milk producers or from
consumers at the store? Why or why not?

What effect does a $1 specific tax have on equilibrium price and quantity, and what is the
incidence on consumers, if the following is true: a. The demand curve is perfectly inelastic. b.
The demand curve is perfectly elastic. c. The supply curve is perfectly inelastic. d. The supply
curve is perfectly elastic. e.

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Keeler et al. (2004) estimate that the U.S. Tobacco Settlement between major tobacco companies
and 46 states caused the price of cigarettes to jump by 45¢ per pack (21%) and overall per
capita cigarette consumption to fall by 8.3%. What is the elasticity of demand for cigarettes? Is
cigarette demand elastic or inelast

In the application "Aggregating the Demand for Broadband Service" (based on Duffy-Deno,
2003), the demand function is Qs = 5.97p-0.563 for small firms and Ql = 8.77p-0.296 for larger
firms, where price is in cents per kilobyte per second and quantity is in millions of kilobytes per
second (Kbps). What is the total dema

If José Maria's utility function is U(q1, q2) = q1 + Aq1a q2b + q2, what is his marginal utility
from q2? What is his marginal rate of substitution between these two goods?

You are considering a $500,000 investment in the fast-food industry and have narrowed your
choice to either a McDonald's or a Penn Station East Coast Subs franchise. McDonald's indicates
that, based on the location where you are proposing to open a new restaurant, there is a 25
percent probability that aggregate 10-yea

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Show that the supply elasticity of a linear supply curve that cuts the price axis is greater than 1
(elastic), and the coefficient of elasticity of any linear supply curve that cuts the quantity axis is
less than 1 (inelastic).

Miguel considers tickets to the Houston Grand Opera and to Houston Astros baseball games to
be perfect substitutes. Show his preference map. What is his utility function?

Sofia will consume hot dogs only with whipped cream. Show her preference map. What is her
utility function?

As a manager of a chain of movie theaters that are monopolies in their respective markets, you
have noticed much higher demand on weekends than during the week. You therefore conducted
a study that has revealed two different demand curves at your movie theaters. On weekends, the
inverse demand function is P = 20 − 0.
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What happens to the budget line if the government applies a specific tax of $1 per gallon on
gasoline but does not tax other goods? What happens to the budget line if the tax applies only to
purchases of gasoline in excess of 10 gallons per week?

Helen views raspberries and blackberries as perfect complements. Initially, she buys five pints of
each this month. Suppose that the price of raspberries falls while the price of blackberries rises
such that the bundle of five pints of each lies on her budget line. Does her optimal bundle
change? Explain.

You manage a company that competes in an industry that is comprised of four equalsized firms
that produce similar products. A recent industry report indicates that the market is fairly
saturated, in that a 10 percent industry-wide price increase would lead to an 18 percent decline in
units sold by all firms in the indu

Enrodes is a monopoly provider of residential electricity in a region of northern Michigan. Total

demand by its 3 million households is Qd = 1,500 − 2P, and Enrodes can produce electricity at
a constant marginal cost of $4 per megawatt-hour. Consumers in this region of Michigan have
recently complained that Enrodes i

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Einav et al. (2012) found that people who live in high sales tax locations are much more likely
than other consumers to purchase goods over the Internet because Internet purchases are
generally exempt from the sales tax if the firm is located in another state. They found that a 1%
increase in a state's sales tax increa

A subsidy is a negative tax through which the government gives people money instead of taking
it from them. If the government applied a $1.05 specific subsidy instead of a specific tax in
Figure 2.12, what would happen to the equilibrium price and quantity? Use the demand function
and the aftersubsidy supply function t

How would your answer to Exercise 1.1 change if U = ln (q1 + q2) so that consumers have
diminishing marginal utility of diamonds?

In the Challenge Solution, we could predict the change in the equilibrium price of crops but not
the quantity when GM seeds are introduced. Are there any conditions on the shapes of the supply
and demand curves (or their elasticities) such that we could predict the effect on quantity?

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Ann's utility function is U = q1q2 / (q1 + q2). Solve for her optimal values of q1 and q2 as a
function of p1, p2, and Y?
Manufactured diamonds have become as big and virtually indistinguishable from the best natural
diamonds (Dan Mitchell, "Fake Gems, Genuine Appeal," New York Times, June 21, 2008).
Suppose consumers change from believing that manufactured diamonds, q1, were imperfect
substitutes for natural diamonds, q2, to perfect subs

The Thai government actively intervenes in markets (Limsamarnphun, Nophakhun, "Govt

Imposes Price Controls in Response to Complaints," The Nation, May 12, 2012). a. The
government increased the daily minimum wage by 40% to Bt300 (300 bahts ( $9.63). Show the
effect of a higher minimum wage on the number of workers de

If the demand function is Q = 110 - 20p, and the supply function is Q = 20 + 10p, what are the
equilibrium price and quantity?

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In 2015 Qualcomm, Inc., an American multinational semiconductor company, came under

scrutiny for its business practices by the United States and the European Union. It was argued
that Qualcomm was paying a major customer to exclusively use its chips. In addition, Qualcomm
was accused of selling its chips below cost in

Suppose that Boston consumers pay twice as much for avocados as they pay for tangerines,
whereas San Diego consumers pay half as much for avocados as they pay for tangerines.
Assuming that consumers maximize their utility, which city's consumers have a higher marginal
rate of substitution of avocados for tangerines? Ex

Use calculus to show that an increase in a specific sales tax ( reduces quantity less and tax
revenue more, the less elastic the demand curve. (The quantity demanded depends on its price,
which in turn depends on the specific tax, Q(((()), and tax revenue is R = ( (()Q(((())?

Suppose the European Union (EU) is investigating a proposed merger between two of the largest
distillers of premium Scotch liquor. Based on some economists' definition of the relevant market,
the two firms proposing to merge enjoyed a combined market share of about two-thirds, while
another firm essentially controlled

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Between 1971 and 2006, the United States from time to time imposed quotas or other restrictions
on importing steel. A quota says that no more than QÌ… > 0 units of steel can be imported into
the country. Suppose both the domestic supply curve of steel, Sd, and the foreign supply curve of
steel for sale in the United St

On November 18, 2012, Nintendo released its eighth-generation video game console, the Wii U.
In November 2013, Microsoft and Sony followed suit by releasing the Xbox One and
PlayStation 4, respectively. Although these three video game consoles have dominated the video
game console market, new micro-consoles, which down

Mark consumes only cookies and books. At his current consumption bundle, his marginal utility
from books is 10 and from cookies is 5. Each book costs $10, and each cookie costs $2. Is he
maximizing his utility? Explain. If he is not, how can he increase his utility while keeping his
total expenditure constant?

When the U.S. government announced that a domestic mad cow was found in December 2003,
analysts estimated that domestic supplies would increase in the short run by 10.4% as many other
countries barred U.S. beef. An estimate of the price elasticity of beef demand is -0.626
(Henderson, 2003). Assuming that only the domes

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A function ((X, Y) is homogeneous of degree ( if, when we multiply each argument by a

constant α, f(αX,αY) = α(((X, Y). Thus, if a function is homogeneous of degree zero,
((αX,αY) = α0( (X, Y) = ((X, Y), because α0 = 1. Show that the optimality conditions for the
Cobb- Douglas utility function in Solved Problem

Recently the pharmaceutical company Mylan attempted a hostile takeover of generic drugmaker
Perrigo. Perrigo reported a net loss the year before the attempted takeover, which was partially
driven by a spike in administrative expenses. Suppose that Mylan perceives there is a 70 percent
probability that Perrigo's loss is

Due to a recession that lowered incomes, the 2008 market prices for last-minute rentals of U.S.
beachfront properties were lower than usual. Suppose that the inverse demand function for
renting a beachfront property in Ocean City, New Jersey, during the first week of August is p =
1,000 - Q + Y/20, where Y is the media

Salvo and Huse (2012) found that roughly one-fifth of flexible-fuel (cars that can run on a mix of
ethanol and gasoline) car owners choose gasoline when the price of gas is 20% above that of
ethanol (in energy-adjusted terms) and, similarly, one-fifth of motorists choose ethanol when
ethanol is 20% more expensive than

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China's entry into the World Trade Organization (WTO) in 2001 created more competition
between local and foreign firms, and also provided China greater access to the market for
exports. This was particularly true in the market for rubber since, at the time, China was the
world's second largest consumer of rubber (China

Suppose that the inverse demand function (where the demand curve is rearranged so that price is
a function of quantity) for movies is p = 120 - Q1 for college students