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Eco 316 Week 3 Dq 2

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ECO 316 Week 3 DQ 2

This archive file of ECO 316 Week 3 Discussion Question 2 Should I Expect a Bail Out? contains:

From Chapter 15, complete problem 19 (page 363): Suppose that you manage a small SL that has a net worth of -$50 million. You fear that within two years, regulators will discover that your firm is insolvent and will shut you down. You have two possible investment strategies: (a) continue to operate as you have been, offering market interest rates on CDs to finance mortgage loans, or (b) offer higher than market interest rates on CDs and use the increased funds to speculate in junk bonds and real estate. Your analysis tells you that strategy (a) has a 10% chance of losing $10 million and a 90% chance of gaining $20 million, with an expected return of $17 million. Strategy (b) has an 80% chance of losing $50 million and a 20% chance of gaining $75 million, with an expected return of -$25 million. What strategy should you follow? Why? What are the consequences of your choice? What should a regulator do in this situation? How might your behavior change if you expect a government bail out? Economics - General Economics Week 1 Should You Invest Short Term? - Week1 DQ1 ECO316 What are the implications of a U.S. policy to “bail out” firms and heavily subsidize the economy? How could such a policy create inflation and higher interest rates? If you have cash available should you wait until interest rates rise? Treasury Inflation Protection Bonds - Week1 DQ2 ECO316 Week 2 New Product, Will I Be Rich? -Week2 DQ1 ECO316 My company just came out with a new product? Should I buy a bunch of company stock and get rich? What are the pros and cons of such an investment?

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