1. What is the difference between a moral hazard problem and an agency problem when it comes to corporate management? What are some of the ways each can be mitigated?

2. The Needed Corp has current assets of $2.8 million and current liabilities of $1 million. The firm needs additional inventories and can obtain these inventories by financing them with short-term notes (a current liability). A bond covenant in some of their long-term debt requires the firm to have a current ratio (current asset/current liabilities) of not less than 1.9. Assuming that Needed Company reduces its current ratio to 1.9, how much additional inventories can the firm add. It should be noted that an equal increase in the short-term notes would occur.

3. You have been asked to build a balance sheet from the following information.
The firm has cash of $190,000, net fixed asset of $3,200,000, account payable of $650,000, accounts receivable of $340,000, retained earnings of $1,900,000, long term debt of $1,500,000, other long term asset of $880,000, inventories of $400,000, and notes payable of $250,000. (Note Common Stock account needs to be calculated)

4. You have decided to buy a house and need to save for the down payment. You have currently $10,000 in an account for that purpose. You estimate you will need to accumulate $80,000 for the down payment at the end of 6 years. How much do you need to put away at the beginning of each of the next 6 years if you expect you can 8% return on your money?
If you put down the $80,000 and that represents the equity to be used to purchase the home and you will borrow 80% using a fixed-rate 30-year loan (monthly payments) at a rate of 3.75%, what will your monthly payments be?

5. You have been asked to get the price of a bond that has the par value of 100, the coupon is 2.875%, 10-year maturity. You know that the current 10-year treasury is priced to yield 1.82%, that the default risk premium on the bond is 50 basis points, and that the maturity risk premium is .0045*(T-1). The bond is a very liquid corporate bond. What is the current price? What would the Yield-to-Call be if the bond were callable in 5 years at a price of 104?
What would the current yield be for the bond?

1. What is the difference between a moral hazard problem and an age...