The Primary Goal of a Publicly-Owned Firm Interested in Serving

question 21

Multiple Choice

The primary goal of a publicly-owned firm interested in serving its stockholders should be to

• A) Minimize the debt used by a firm.
• B) Maximize expected EPS.
• C) Minimize the chances of losses.
• D) Maximize the stock price per share.
• E) Maximize expected net income.

Recognize the concepts of duration and modified duration as measures of interest rate sensitivity.

Identify the factors affecting bond duration and how they influence bond price volatility.

Understand the difference between active and passive bond portfolio management strategies.

Assess the role of interest-rate risk in bond portfolio management for both active and passive managers.

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Definitions:

Tax

Mandatory financial charge or some other type of levy imposed upon a taxpayer by a governmental organization in order to fund government spending and various public expenditures.

Excess Demand

A situation where the quantity demanded of a good exceeds the quantity supplied at a particular price, leading to a shortage.

Supply Function

A mathematical function that illustrates the quantity of a good that producers are willing and able to sell at different price levels.

Demand Function

A mathematical expression showing the relationship between the quantity demanded of a good and its price, along with other determinants of demand like income.