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 Calendar Page and on Blackboard)
• MyFinanceLab Assignments (can be found on Course Calendar page and on Blackboard)
• Capital Budgeting Case (See syllabus for details)
• Corporate Governance Assignment (see Blackboard for details)
• Beta Assignment

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

Give the name of a specific financial intermediary (e.g. Bank of America or JP Morgan Chase or Visa) for the first five of the functions and write two or three sentences about each one, showing how it performs each of the functions.

Corporate Governance and Corporate Social Responsibility:

Write about ten sentences (not much more) on whether corporations should have the obligation to consider social impact in making their business decisions.  Write brief arguments, both pro _and_ con.  Send it to me by email at pviswanath@pace.edu

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). You can also read up on Groupon's history on Wikipedia. The About Tech website has a readable description of Groupon's business model. Groupon financial information can be found on finance.yahoo.com.
We know that a stock's beta measures its sensitivity to market movements. We also know that the stock beta is related to the nature of the product sold by a company, especially its price elasticity.

What is your best estimate of the beta of Groupon? You can use published estimates, as long as you can explain how those published estimates have been computed. Keep in mind, as well, that the beta is a forward-looking number. Beta estimates using historical information are backward-looking and may or may not be the best estimate of the underlying beta, which measures the future tendency of an asset to move with the market. (As mutual funds note, "Past performance is no indication of future results.")