Grossmont College Common Stock of Gentry Company Questions
Question Description
1- You own stock in Gentry Company, and you read in the financial press that a recent bond offering has raised the firm’s debt/equity ratio from 35 percent to 55 percent. Discuss the effect of this change on the variability of the firm’s net income stream, other factors being constant. Discuss how this change would affect your required rate of return on the common stock of Gentry Company.
2- Young people with little wealth should not invest money in risky assets such as the stock market, because they can’t afford to lose what little money they have.” Do you agree or disagree with this statement? Why?
3- Reflecting on the Financial Crisis of 2008, if sub-prime mortgage-backed securities defaulting started the fire, how were Credit Default Swaps akin to tossing gasoline on the fire?
4- James Grant of Grant’s Interest Rate Observer was quoted during the Financial Crisis of 2008 as saying “there is nothing like low-interest rate for getting our country into trouble.” How would you interpret this statement?

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