MGEC71H3 Midterm: C48-Sample-Midterm-SOLUTIONS

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Utsc: ecm c48 sample midterm exam: solutions. There would be no change to the answer to part a if all bonds were purchased at a discount rather than at par. (2 marks) Direct finance refers to any situation where borrowers borrow funds directly from lenders in financial markets by selling them securities (or financial instruments), which are claims on the borrower"s future income or assets. (3 marks) For example, nortel might raise funds by selling bonds or new shares (an ipo) to savers (lenders). (1 mark) (5 marks) Indirect finance refers to any situation that involves a financial intermediary (a third or middle party) that stands between the lender-savers and the borrower-spenders and helps to transfer funds from one to the other. A financial intermediary does this by borrowing funds from the lender-savers and then using these funds to make loans to borrower-spenders. (4 marks)

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