Dr. P.V. Viswanath

pviswanath@pace.edu

Problem assignments from: Jonathan Berk and Peter DeMarzo, Corporate Finance: The Core, Pearson Prentice-Hall.

• Discussion Board Assignments (can be found on Course Outline Page and on Blackboard)
• MyFinanceLab Assignments (can be found on Course Outline page)
• Financial Markets and Institutions
• Betas

Financial Markets and Institutions

As explained in the slides, financial functions can be broadly divided into six categories:

• To transfer economic resources across time, borders and among industries
• To provide ways of managing risk
• To provide ways of clearing and settling payments to facilitate trade
• To provide a mechanism for the pooling of resources and for the subdividing of ownership in various enterprises
• To provide price information to help coordinate decentralized decision making in various sectors of the economy
• To provide ways of dealing with the incentive problems created when one party to a transaction has information that the other party does not or when one party acts as an agent for another

Choose a specific financial intermediary (e.g. Bank of America or Visa or FICO (formerly Fair Isaac Corporation)) and write two paragraphs explaining what financial function (of the ones described above) it performs and how. Do not write about a class of intermediaries, such as Investment Bankers; pick a specific one (e.g. JP Morgan Chase) and explain exactly how this institution performs one or more of the functions described above.

Betas

The Groupon company is discussed in the NY Times of Nov. 23, 2010. (http://boss.blogs.nytimes.com/2010/11/23/doing-the-math-on-a-groupon-deal/?ref=business).
In class, we noted that a stock's beta measures its sensitivity to market movements. We also spoke about the relationship between the nature of the product sold by a company, especially its price elasticity and its beta.
What would the beta of the Groupon company be, if it were traded on the stock market as a separate company?