Part A:
Discuss principal-agent problems as related to a corporation. Explain with an example of breach of principal- agent problem.
Part B:
You just inherited a trust that will pay you $200,000 per year in perpetuity. However, the first payment will not occur for exactly three more years. Assuming a 8.5% annual interest rate, what is the value of this trust today? Explain the concept of perpetuity and also provide example of any company that has issued perpetual security.
Part C:
Ms. Colonial has just taken out a $250,000 mortgage at an interest rate of 5% per year. If the mortgage calls for equal monthly payments for 22 years, what is the amount of each payment? (Assume monthly compounding or discounting.)
Part D:
Briefly explain the difference between beta as a measure of risk and variance as a measure of risk. Calculate both the variables for 2 chosen company and share your derivations of the risk faced by 2 chosen companies.
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