1. Federal deposit insurance, CAMELS ratings, and economies of scale. (A) 1. Explain the purpose of federal deposit insurance. 2. Explain the moral hazard problem in the context of federal deposit insurance.
2. Ted wants to purchase some outstanding shares of preferred stock that promise an annual payment of $14.2 forever. Assuming Ted requires an investment return of 10.8 percent on similar investments, what is the most he should be willing to pay per share?
3. A firm has a long-term debt-equity ratio of .4. Shareholders’ equity is $.92 million. Current assets are $380,000, and the current ratio is 2.0. The only current liabilities are notes payable. What is the total debt ratio? (Round your answer to 2 decimal places.)
Total debt ratio________