Question Description
I need help with a Mathematics question. All explanations and answers will be used to help me learn.
Review the valuation principle and how it helps a financial manager make decisions. In the early 1980s, inflation was in the double digits and the yield curve sloped sharply downward. What did this yield curve suggest about the financial manager’s / investor’s expectations about future rates? Explain how a downward sloping yield curve affects the prices of existing long-term bonds and stocks trading in the secondary market, assuming this change in the yield curve is the only change that occurs. Would you characterize the change in the yield curve as a systematic or unsystematic risk?
Explanation & Answer
Attached.
Running head: VALUATION
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Valuation
Name
Institution
VALUATION
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Valuation Principle.
Notably, the valuation principle alludes that for the firm to increase its market value, the
benefits that come from a certain investment must outweigh the costs. As well, the principle
asserts that the true value of any asset that is owned by a firm must be determined by market
forces. With all that in mind, the valuation principle will have a huge impact on the manner that a
manager makes decisions. In this case, it means that the manager should use the marke...
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