Question

1. You want to buy a new car and are considering a payment plan where you will make monthly payments of $1000 for two years, starting at the end of this month. You have been quoted a rate of 5.5% p.a. compounding semi-annually. What is the price of the car today?

2. Which of the following actions would be likely to reduce conflicts of interest between shareholders and managers?

a. The company’s founder, who is also the chairman of the board, sells 95% of her shares.

b. The company outside auditing firm is given a lucrative year-by-year consulting contract with the company

c. The composition of the board of directors is changed from all inside directors to all outside directors, and the directors are compensated with stock rather than cash.

d. Parliament passes a law that severely restricts takeover activity.

e. elect a board of directors that allows managers greater freedom of action.

Answer 1

2. Which of the following actions would be likely to reduce conflicts of interest between shareholders and managers?

Answer : e. elect a board of directors that allows managers greater freedom of action.