Ceos like to Hide Bad Information from the Financial Market, What’s the Consequence?

1.CEOs like to hide bad information from the financial market, what’s the consequence? What can be done to prevent this? CEOs like to hide bad information from the financial market, the first reason for this is that bad information will lead to the stock price went down, and investors will lose confidence, further exacerbating fell. The second reason is that CEOs hide bad information because they are willing to drive stock price up, in order to attract more investors. I have 3 ways to prevent this. First, requiring companies to disclose important information on a regular basis. Second, before investment, investors can make a market research and industry research. Finally, strengthen market supervision. 2.What are the major differences between common stock and preferred stock? I think there are 3 major differences between common stock and preferred stock. The first difference is that preferred stock has a fixed dividend rate and doesn’t participate in dividends, however, common stock needs the participation of common stock dividends. The second difference is that when the company bankruptcy, preferred shareholders pay off before common shareholders. The last difference is that the right range of preferred shareholders is less than common shareholders, they don’t have the right to vote and the right to be elected. But common shareholders have all of these right.3.Give three main reasons that a private firm wants to issue equity (IPO); give two main reasons that a public firm wants to go private. The first reason that a private firm wants to issue equity (IPO) is raising capital, in order to carry out business activities, issuing equity can provide sources of funding. The second reason is expanding business capital, when a private firm want to expand business capital, it can issue equity to meet need of funding, the last reason is improving ratio of capital, in order to guarantee capitals have a reasonable ratio with liabilities, and improve competitiveness of a private firm.4.Why securitization is common in highly developed financial market? Securitization means the process of turning assets into securities financial instruments that can be readily bought and sold in financial market, the way stocks, bonds and futures contracts are traded. When used in relation to real estate, securitization means taking mortgages issued by banks and other lenders and converting them into securities that can be sold to investors. So in highly developed financial market, securitization can increase liquidity, and assets can be transferred to stocks, bonds and so on by securitization. In financial market, risk can’t be eliminated, but risk can be scattered and transferred, so sellers can transfer securities to avoid risk, and although the buyers need to undertake the risk, but they can make a profit from the securities, therefore, securitization is common in highly developed financial market.5.Assume that only the following three stocks exist in the financial market, calculate the price-weighted index, value-weighted index, and equal-weighted index. Assume initial index as 100.

Price-weighted = 100*(132/130) = 101.5   Value-weighted = 100*(720/770) = 93.5  Equal-weighted = [{32%*60%+16%*(-33%)+52%*(-40%)}/3+1]*100=97.7

6.You are buying a put option of GM at a strike price of $75 and maturity of 1 months. The current trading price is $75. The price of the option is $2. What would be the major motive to buy the put option? What is the maximum loss for the investment? What is the maximum gain? The major motive to buy the put option is that the price decreases.Maximum Loss = $2+$75-$75=$2I think the maximum gain is that the price decreases to $0, so:Maximum Gain=$75-$2=$73 7.What’s the benefit of buying on margin? If the initial margin is 50%, maintenance margin is 40%, when will you receive a margin call for the stock you bought at $50/share at margin? The benefit of buying on margin is that investors will spend the same number of money to gain more return.Assume that we will purchase 100 shares，Share price: $50，Initial margin: 50%，Maintenance margin: 40%，Stock $5000       Borrowed $2500       Equity $2500.Maintenance margin = (100P – 2500)/100P = 0.4  P = 41.7  8.Corporate governance is believed to promote long term goal of the firm. As such, investing in firms with good corporate governance has been proved to be profitable. Give two other aspects of “good firm”, which you believe are associated with higher value / stock return in the long run. Except the reason of corporate governance, I have 3 other aspects can promote a firm to become a “good firm”. First aspect is HR (human resource). The growth rate of the human resource of a firm should be faster than the development speed of the firm, otherwise, enterprise’s development speed will reduce or stagnation. Second aspect is product research and development, product research and development includes a lot of aspects, such as meeting customer demand, expand the product portfolio and so on. So Independent research and development and technology innovation can promote long term goal of the firm. Finally, culture of firm also be an important aspect of “ good firm”. All of members can get a common value through a better culture of a firm, and when members get a common value, the firm can become a “good firm”.