Question 4(a) Managers are not always working all the benefits of shareholders Explain what agency

Question

Question 4

(a) Managers are not always working all the benefits of shareholders.

Explain what agency

problem is in real world. (6 marks)

(b) Stock exchanges are the backbone of the capital market.

Why would a finance manager of a large public listed company issue?

commercial paper in money market to finance some projects?

(3 marks)

(c) Recently, a financial analyst of New York Stock Exchange came up with the

hypothetical analysis as follows:

Return from Exchange: 9%

Probability: 0.1 (Most likely)

Return from Exchange: 10%

Probability: 0.2 (likely)

Return from Exchange: 11%

Probability: 0.4 (Neutral)

Return from Exchange: 12%

Probability: 0.2 (unlikely)

Return from Exchange: 13%

Probability: 0.1 (most unlikely)

Required:

(i) What is the expected return that could be gained from New York Stock

Exchange? (3 marks)

(ii) What is the variance for the return? (4 marks)

(iii) What is the standard deviation of the return? (4 marks

Finance