answer to the Bond Evaluation, Selection, and Management
Bond Evaluation, Selection, and Management, Second Edition by R. Stafford Johnson
Copyright © 2010 R. Stafford Johnson
Answers and Solutions to Select
End-of-Chapter Problems
CHAPTER 1
1. In the private sector, real assets consist of both the tangible and intangible capital goods, as well as human capital, which are combined with labor to form the business. The business, in turn, transforms ideas into the production and sale of goods or services that will generate a future stream of earnings. The financial assets, on the other hand, consist of the financial claims on the earnings. These claims are sold to raise the funds necessary to acquire and develop the real assets.
In the public sector, the federal government’s capital expenditures and state and local governments’ capital expenditures represent the development of real assets that these units of government often finance through the sale of financial claims on either the revenue generated from a particular public sector project or from future tax revenues.
2. The financial market can be described as a market for loanable funds; that is, a market where there is a supply and demand for loanable funds. The supply of loanable funds comes from the savings of households, the retained earnings of businesses, and the surpluses of units of government. The demand for loanable funds comes from businesses who need to raise funds to finance their capital purchases of equipment, plants, and inventories; households who need to purchase houses, cars, and other consumer durables; and the Treasury, federal agencies, and municipal governments who need to finance the construction of public facilities, projects, and operations. The exchange of loanable funds from savers to borrowers is done either directly through the selling of financial claims (stock, bonds, commercial paper, etc.) or indirectly through financial institutions.
11. Securitized assets are claims on a portfolio of loans. In creating a securitized
Copyright © 2010 R. Stafford Johnson
Answers and Solutions to Select
End-of-Chapter Problems
CHAPTER 1
1. In the private sector, real assets consist of both the tangible and intangible capital goods, as well as human capital, which are combined with labor to form the business. The business, in turn, transforms ideas into the production and sale of goods or services that will generate a future stream of earnings. The financial assets, on the other hand, consist of the financial claims on the earnings. These claims are sold to raise the funds necessary to acquire and develop the real assets.
In the public sector, the federal government’s capital expenditures and state and local governments’ capital expenditures represent the development of real assets that these units of government often finance through the sale of financial claims on either the revenue generated from a particular public sector project or from future tax revenues.
2. The financial market can be described as a market for loanable funds; that is, a market where there is a supply and demand for loanable funds. The supply of loanable funds comes from the savings of households, the retained earnings of businesses, and the surpluses of units of government. The demand for loanable funds comes from businesses who need to raise funds to finance their capital purchases of equipment, plants, and inventories; households who need to purchase houses, cars, and other consumer durables; and the Treasury, federal agencies, and municipal governments who need to finance the construction of public facilities, projects, and operations. The exchange of loanable funds from savers to borrowers is done either directly through the selling of financial claims (stock, bonds, commercial paper, etc.) or indirectly through financial institutions.
11. Securitized assets are claims on a portfolio of loans. In creating a securitized