ACTSC371 Study Guide - Midterm Guide: Promissory Note, Bundesautobahn 60, Ferrari P

• School: University of Waterloo
• Department: Actuarial Science
• Course: ACTSC371
• Professor: Brent James Matheson

Document Summary

Actsc 371 fall 2014 assignment #1 solution: a. The bank loan is a financial liability for lanni. (lanni"s iou is the bank"s financial asset). The cash lanni receives is a financial asset. Lanni"s promissory note (i. e. , lanni"s iou to the bank): lanni transfers financial assets (cash) to the software developers. In return, lanni gets a real asset, the completed software. No financial assets are created or destroyed; cash is simply transferred from one party to another: lanni gives the real asset (the software) to microsoft in exchange for a financial asset, 1,500 shares of stock in microsoft. If microsoft issues new shares in order to pay lanni, only then would this represent the creation of new financial assets: a, lanni exchanges one financial asset (1,500 shares of stock) for another (,000). Lanni gives a financial asset (,000 cash) to the bank and gets back another financial asset (its iou).