The Impact of Financial Markets on the Economy Part 1

4. Although we stated that real assets constitute the true productive capacity of an economy, it is hard to conceive of a modern economy without well-developed financial markets and security types. How would the productive capacity of the U.S. economy be affected if there were no markets in which to trade financial assets? 5. Firms raise capital from investors by issuing shares in the primary markets. Does this imply that corporate financial managers can ignore trading of previously issued shares in the secondary market? Intermediate 6. Suppose housing prices across the world double. a. Is society any richer for the change? b. Are homeowners wealthier? c. Can you reconcile your answers to (a) and (b)? Is anyone worse off as a result of the change? 7. Lanni Products is a start-up computer software development firm. It currently owns computer equipment worth $30,000 and has cash on hand of $20,000 contributed by Lanni’s owners. For each of the following transactions, identify the real and/or financial assets that trade hands. Are any financial assets created or destroyed in the transaction? a. Lanni takes out a bank loan. It receives $50,000 in cash and signs a note promising to pay back the loan over 3 years. b. Lanni uses the cash from the bank plus $20,000 of its own funds to finance the development of new financial planning software. c. Lanni sells the software product to Microsoft, which will market it to the public under the Microsoft name. Lanni accepts payment in the form of 1,500 shares of Microsoft stock. d. Lanni sells the shares of stock for $80 per share and uses part of the proceeds to pay off the bank loan. 8. Reconsider Lanni Products from the previous problem. a. Prepare its balance sheet just after it gets the bank loan. What is the ratio of real assets to total assets? b. Prepare the balance sheet after Lanni spends the $70,000 to develop its software product. What is the ratio of real assets to total assets? c. Prepare the balance sheet after Lanni accepts the payment of shares from Microsoft. What is the ratio of real assets to total assets? 9. Examine the balance sheet of commercial banks in Table 1.3. What is the ratio of real assets to total assets? What is that ratio for nonfinancial firms (Table 1.4)? Why should this difference be expected? 10. Consider Figure 1.5, which describes an issue of American gold certificates. a. Is this issue a primary or secondary market transaction? b. Are the certificates primitive or derivative assets? c. What market niche is filled by this offering? 11. Discuss the advantages and disadvantages of the following forms of managerial compensation in terms of mitigating agency problems, that is, potential conflicts of interest between managers and shareholders. a. A fixed salary. b. Stock in the firm that must be held for five years. c. A salary linked to the firm’s profits. Figure 1.5 A gold-backed security 12. We noted that oversight by large institutional investors or creditors is one mechanism to reduce agency problems. Why don’t individual investors in the firm have the same incentive to keep an eye on management? 13. Give an example of three financial intermediaries and explain how they act as a bridge between small investors and large capital markets or corporations. 14. The average rate of return on investments in large stocks has outpaced that on investments in Treasury bills by about 7% since 1926. Why, then, does anyone invest in Treasury bills? 15. What are some advantages and disadvantages of top-down versus bottom-up investing styles? 16. You see an advertisement for a book that claims to show how you can make $1 million with no risk and with no money down. Will you buy the book? 17. Why do financial assets show up as a component of household wealth, but not of national wealth? Why do financial assets still matter for the material well-being of an economy? 18. Wall Street firms have traditionally compensated their traders with a share of the trading profits that they generated. How might this practice have affected traders’ willingness to assume risk? What is the agency problem this practice engendered? 19. What reforms to the financial system might reduce its exposure to systemic risk? E-INVESTMENTS EXERCISES 1. Log on to finance.yahoo.com and enter the ticker symbol RRD in the Get Quotes box to find information about R.R. Donnelley & Sons. a. Click on Profile. What is Donnelly’s main line of business? b. Now go to Key Statistics. How many shares of the company’s stock are outstanding? What is the total market value of the firm? What were its profits in the most recent fiscal year? c. Look up Major Holders of the company’s stock. What fraction of total shares is held by insiders? d. Now go to Analyst Opinion. What is the average price target (i.e., the predicted stock price of the Donnelly shares) of the analysts covering this firm? How does that compare to the price at which the stock is currently trading? e. Look at the company’s Balance Sheet. What were its total assets at the end of the most recent fiscal year? 2. a. Go to the Securities and Exchange Commission Web site, www.sec.gov. What is the mission of the SEC? What information and advice does the SEC offer to beginning investors? b. Go to the NASD Web site, www.finra.org. What is its mission? What information and advice does it offer to beginners? c. Go to the IOSCO Web site, www.iosco.org. What is its mission? What information and advice does it offer to beginners? SOLUTIONS TO CONCEPT CHECKS 1. a. Real b. Financial c. Real d. Real e. Financial Equivalent taxable yield: r muni , where rmuni is the rate on tax-free municipal debt 1 2 tax rate Cutoff tax rate (for indifference to taxable versus tax-free bonds): 1 2 r muni rtaxable 1. In what ways is preferred stock like long-term debt? In what ways is it like equity? 2. Why are money market securities sometimes referred to as “cash equivalents”? 3. Which of the following correctly describes a repurchase agreement? a. The sale of a security with a commitment to repurchase the same security at a specified future date and a designated price. b. The sale of a security with a commitment to repurchase the same security at a future date left unspecified, at a designated price. c. The purchase of a security with a commitment to purchase more of the same security at a specified future date. 4. What would you expect to happen to the spread between yields on commercial paper and Treasury bills if the economy were to enter a steep recession? 5. What are the key differences between common stock, preferred stock, and corporate bonds? 6. Why are high-tax-bracket investors more inclined to invest in municipal bonds than low-bracket investors? 7. Turn back to Figure 2.3 and look at the Treasury bond maturing in May 2030. a. How much would you have to pay to purchase one of these bonds? b. What is its coupon rate? c. What is the yield to maturity of the bond? 8. Suppose investors can earn a return of 2% per 6 months on a Treasury note with 6 months remaining until maturity. What price would you expect a 6-month maturity Treasury bill to sell for? 9. Find the after-tax return to a corporation that buys a share of preferred stock at $40, sells it at year-end at $40, and receives a $4 year-end dividend. The firm is in the 30% tax bracket. 10. Turn to Figure 2.8 and look at the listing for General Dynamics. a. b. c. d. How many shares could you buy for $5,000? What would be your annual dividend income from those shares? What must be General Dynamics earnings per share? What was the firm’s closing price on the day before the listing? 11. Consider the three stocks in the following table. Pt represents price at time t, and Qt represents shares outstanding at time t. Stock C splits two for one in the last period. A B C P0 Q0 P1 Q1 P2 Q2 90 50 100 100 200 200 95 45 110 100 200 200 95 45 55 100 200 400 a. Calculate the rate of return on a price-weighted index of the three stocks for the first period (t 5 0 to t 5 1). b. What must happen to the divisor for the price-weighted index in year 2? c. Calculate the rate of return for the second period (t 5 1 to t 5 2). NAМI SYMBOL CLOSI НЕТ CHG Gome \top О А Goмen Gop Gordner Denver Gor1ner Ga11Dg GАТХ Goylord Eлte�oinmen1 Gozit-GloЬe Gen(orp Gerкo Shipping&Troding Generoc Holding1 Generol (оЬlе Generol 0ynomin Generol Eledric GME G{I GPS GDI 1Т GL0G GMI GП GZI GY GNK GNR( BG( GD GE VOLUMI 52 WK HIGH 52WК LOW 0.17 1,584,470 -0.04 4,277,Ш 0.50 S,952,210 797,258 0.08 S80,0S6 -0.14 0.08 126,666 0.27 226,825 273,954 0.44 -0.11 2,152 321,785 -0.01 0.04 Щ441 169,519 -0.14 322,159 0.47 0.61 1,319,120 0.13 4S 307 178 16.74 14.65 28.47 48.30 Шl 10.24 38.76 37.78 9.30 6.69 279 22.21 26.80 64.69 19.72 26.66 16.26 29.23 92.93 46.69 13.34 45.50 40.37 11.07 7.27 10.14 30.61 45.20 74.54 21.00 16.36 8.28 15.08 41.S◄ 31.98 8.76 28.90 17.39 8.41 3.74 2.72 15.41 20.21 13.95 14.02 DIV YIILD 0.60 P/IYТD%CНG 3.58 6.80 5.46 8.07 1.76 16.88 0.41 9.01 .... 30.98 О.ВО 0.50 0.20 3.10 15.19 .... 105.03 4.61 .... 93.96 1.20 0.43 ····dd 4.36 19.43 3.15 9.31 3.41 16.01 .... 2.04 0.68 -30.63 9.S7 53.48 -37.32 31.46 -17.49 -11.22 56.50 -159 21.75 -58.73 -20.76 7.16 -2.59 10.11 Figure 2.8 Listing of stocks traded оп the New York Stock Exchange Source: Compiled from data from The Wa/1 Street Journal Online, July 18, 2012. PRICES АТ CLOSE, July 17, 2012 IBM (IBM) Expiration Jul Aug Oct Jan Jul Aug Oct Jan Underlying stock price: 183.65 Strike Last 180.00 180.00 180.00 180.00 185.00 185.00 185.00 185.00 5.50 6.85 9.70 12.58 2.80 4.10 6.99 9.75 Call Volume 620 406 184 52 2231 656 843 135 Open lnterest Last 1998 2105 424 2372 3897 2656 969 3156 2.11 3.70 6.85 10.25 4.20 6.26 9.10 12.01 Volume 3080 847 245 76 2725 634 783 243 Figure 2.10 Stock options оп IBM Source: Compiled from data downloaded from The Wa/1 Street Journal Online, July 17, 2012. Put Open lnterest 8123 3621 4984 3196 7370 3367 2692 10731 12. Using the data in the previous problem, calculate the first-period rates of return on the following indexes of the three stocks: a. A market-value-weighted index. b. An equally weighted index. 13. An investor is in a 30% tax bracket. If corporate bonds offer 9% yields, what must municipals offer for the investor to prefer them to corporate bonds? 14. Find the equivalent taxable yield of a short-term municipal bond currently offering yields of 4% for tax brackets of zero, 10%, 20%, and 30%. 15. What problems would confront a mutual fund trying to create an index fund tied to an equally weighted index of a broad stock market? 16. Which security should sell at a greater price? a. A 10-year Treasury bond with a 9% coupon rate versus a 10-year T-bond with a 10% coupon. b. A 3-month expiration call option with an exercise price of $40 versus a 3-month call on the same stock with an exercise price of $35. c. A put option on a stock selling at $50, or a put option on another stock selling at $60 (all other relevant features of the stocks and options may be assumed to be identical). 17. Look at the futures listings for the corn contract in Figure 2.11. a. Suppose you buy one contract for March delivery. If the contract closes in March at a level of 787.25, what will your profit be? b. How many March maturity contracts are outstanding? 18. Turn back to Figure 2.10 and look at the IBM options. Suppose you buy a January 2013 expiration call option with exercise price $180. a. Suppose the stock price in January is $193. Will you exercise your call? What is the profit on your position? b. What if you had bought the January call with exercise price $185? c. What if you had bought a January put with exercise price $185? 19. Why do call options with exercise prices greater than the price of the underlying stock sell for positive prices? 20. Both a call and a put currently are traded on stock XYZ; both have strike prices of $50 and expirations of 6 months. What will be the profit to an investor who buys the call for $4 in the following scenarios for stock prices in 6 months? What will be the profit in each scenario to an investor who buys the put for $6? a. b. c. d. e. $40 $45 $50 $55 $60 21. Explain the difference between a put option and a short position in a futures contract. 22. Explain the difference between a call option and a long position in a futures contract. 1. A firm’s preferred stock often sells at yields below its bonds because a. b. c. d. Preferred stock generally carries a higher agency rating. Owners of preferred stock have a prior claim on the firm’s earnings. Owners of preferred stock have a prior claim on a firm’s assets in the event of liquidation. Corporations owning stock may exclude from income taxes most of the dividend income they receive. 2. A municipal bond carries a coupon of 6¾% and is trading at par. What is the equivalent taxable yield to a taxpayer in a combined federal plus state 34% tax bracket? 4. A market order has: a. Price uncertainty but not execution uncertainty. b. Both price uncertainty and execution uncertainty. c. Execution uncertainty but not price uncertainty. 5. Where would an illiquid security in a developing country most likely trade? a. Broker markets. b. Electronic crossing networks. c. Electronic limit-order markets. 6. Dée Trader opens a brokerage account and purchases 300 shares of Internet Dreams at $40 per share. She borrows $4,000 from her broker to help pay for the purchase. The interest rate on the loan is 8%. a. What is the margin in Dée’s account when she first purchases the stock? b. If the share price falls to $30 per share by the end of the year, what is the remaining margin in her account? If the maintenance margin requirement is 30%, will she receive a margin call? c. What is the rate of return on her investment? 7. Old Economy Traders opened an account to short sell 1,000 shares of Internet Dreams from the previous problem. The initial margin requirement was 50%. (The margin account pays no interest.) A year later, the price of Internet Dreams has risen from $40 to $50, and the stock has paid a dividend of $2 per share. a. What is the remaining margin in the account? b. If the maintenance margin requirement is 30%, will Old Economy receive a margin call? c. What is the rate of return on the investment? 8. Consider the following limit-order book for a share of stock. The last trade in the stock occurred at a price of $50. Limit Buy Orders Limit Sell Orders Price Shares Price Shares $49.75 500 $50.25 100 49.50 800 51.50 100 49.25 500 54.75 300 49.00 200 58.25 100 48.50 600 a. If a market buy order for 100 shares comes in, at what price will it be filled? b. At what price would the next market buy order be filled? c. If you were a security dealer, would you want to increase or decrease your inventory of this stock? 9. You are bullish on Telecom stock. The current market price is $50 per share, and you have $5,000 of your own to invest. You borrow an additional $5,000 from your broker at an interest rate of 8% per year and invest $10,000 in the stock. a. What will be your rate of return if the price of Telecom stock goes up by 10% during the next year? The stock currently pays no dividends. b. How far does the price of Telecom stock have to fall for you to get a margin call if the maintenance margin is 30%? Assume the price fall happens immediately. 10. You are bearish on Telecom and decide to sell short 100 shares at the current market price of $50 per share. a. How much in cash or securities must you put into your brokerage account if the broker’s initial margin requirement is 50% of the value of the short position? b. How high can the price of the stock go before you get a margin call if the maintenance margin is 30% of the value of the short position? 11. Suppose that Intel currently is selling at $20 per share. You buy 1,000 shares using $15,000 of your own money, borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 8%. a. What is the percentage increase in the net worth of your brokerage account if the price of Intel immediately changes to: (i) $22; (ii) $20; (iii) $18? What is the relationship between your percentage return and the percentage change in the price of Intel? b. If the maintenance margin is 25%, how low can Intel’s price fall before you get a margin call? c. How would your answer to (b) change if you had financed the initial purchase with only $10,000 of your own money? d. What is the rate of return on your margined position (assuming again that you invest $15,000 of your own money) if Intel is selling after 1 year at: (i) $22; (ii) $20; (iii) $18? What is the relationship between your percentage return and the percentage change in the price of Intel? Assume that Intel pays no dividends. e. Continue to assume that a year has passed. How low can Intel’s price fall before you get a margin call? 12. Suppose that you sell short 1,000 shares of Intel, currently selling for $20 per share, and give your broker $15,000 to establish your margin account. a. If you earn no interest on the funds in your margin account, what will be your rate of return after 1 year if Intel stock is selling at: (i) $22; (ii) $20; (iii) $18? Assume that Intel pays no dividends. b. If the maintenance margin is 25%, how high can Intel’s price rise before you get a margin call? c. Redo parts (a ) and (b ), but now assume that Intel also has paid a year-end dividend of $1 per share. The prices in part (a) should be interpreted as ex-dividend, that is, prices after the dividend has been paid. 13. Here is some price information on Marriott: Marriott Bid Ask 39.95 40.05 You have placed a stop-loss order to sell at $40. What are you telling your broker? Given market prices, will your order be executed? 14. Here is some price information on FinCorp stock. Suppose that FinCorp trades in a dealer market. Bid Ask 55.25 55.50 a. Suppose you have submitted an order to your broker to buy at market. At what price will your trade be executed? b. Suppose you have submitted an order to sell at market. At what price will your trade be executed? c. Suppose you have submitted a limit order to sell at $55.62. What will happen? d. Suppose you have submitted a limit order to buy at $55.37. What will happen? 15. You’ve borrowed $20,000 on margin to buy shares in Disney, which is now selling at $40 per share. Your account starts at the initial margin requirement of 50%. The maintenance margin is 35%. Two days later, the stock price falls to $35 per share. a. Will you receive a margin call? b. How low can the price of Disney shares fall before you receive a margin call? 16. On January 1, you sold short one round lot (that is, 100 shares) of Four Sisters stock at $21 per share. On March 1, a dividend of $2 per share was paid. On April 1, you covered the short sale by buying the stock at a price of $15 per share. You paid 50 cents per share in commissions for each transaction. What is the value of your account on April 1? 7. The average rate of return of the average equity mutual fund in the last four decades has been below that of a passive index fund holding a portfolio to replicate a broad-based index like the S&P 500 or Wilshire 5000. Some of the reasons for this disappointing record are the costs incurred by actively managed funds, such as the expense of conducting the research to guide stock-picking activities, and trading costs due to higher portfolio turnover. The record on the consistency of fund performance is mixed. In some sample periods, the better-performing funds continue to perform well in the following periods; in other sample periods they do not. investment company net asset value (NAV) unit investment trust open-end fund closed-end fund load hedge fund funds of funds 12b-1 fees soft dollars turnover exchange-traded funds Related Web sites for this chapter are available at www. mhhe.com/bkm KEY TERMS 1. Would you expect a typical open-end fixed-income mutual fund to have higher or lower operating expenses than a fixed-income unit investment trust? Why? PROBLEM SETS 2. What are some comparative advantages of investing in the following: Basic a. Unit investment trusts. b. Open-end mutual funds. c. Individual stocks and bonds that you choose for yourself. 3. Open-end equity mutual funds find it necessary to keep a significant percentage of total investments, typically around 5% of the portfolio, in very liquid money market assets. Closed-end funds do not have to maintain such a position in “cash equivalent” securities. What difference between open-end and closed-end funds might account for their differing policies? 4. Balanced funds, life-cycle funds, and asset allocation funds all invest in both the stock and bond markets. What are the differences among these types of funds? 5. Why can closed-end funds sell at prices that differ from net asset value while open-end funds do not? 6. What are the advantages and disadvantages of exchange-traded funds versus mutual funds? 7. An open-end fund has a net asset value of $10.70 per share. It is sold with a front-end load of 6%. What is the offering price? 8. If the offering price of an open-end fund is $12.30 per share and the fund is sold with a frontend load of 5%, what is its net asset value? 9. The composition of the Fingroup Fund portfolio is as follows: Stock Shares Price A 200,000 $35 B C D 300,000 400,000 600,000 40 20 25 The fund has not borrowed any funds, but its accrued management fee with the portfolio manager currently totals $30,000. There are 4 million shares outstanding. What is the net asset value of the fund? 10. Reconsider the Fingroup Fund in the previous problem. If during the year the portfolio manager sells all of the holdings of stock D and replaces it with 200,000 shares of stock E at $50 per share and 200,000 shares of stock F at $25 per share, what is the portfolio turnover rate? Intermediate 11. The Closed Fund is a closed-end investment company with a portfolio currently worth $200 million. It has liabilities of $3 million and 5 million shares outstanding. a. What is the NAV of the fund? b. If the fund sells for $36 per share, what is its premium or discount as a percent of net asset value? 12. Corporate Fund started the year with a net asset value of $12.50. By year-end, its NAV equaled $12.10. The fund paid year-end distributions of income and capital gains of $1.50. What was the (pretax) rate of return to an investor in the fund? 13. A closed-end fund starts the year with a net asset value of $12.00. By year-end, NAV equals $12.10. At the beginning of the year, the fund was selling at a 2% premium to NAV. By the end of the year, the fund is selling at a 7% discount to NAV. The fund paid year-end distributions of income and capital gains of $1.50. a. What is the rate of return to an investor in the fund during the year? b. What would have been the rate of return to an investor who held the same securities as the fund manager during the year? 14. a. Impressive Fund had excellent investment performance last year, with portfolio returns that placed it in the top 10% of all funds with the same investment policy. Do you expect it to be a top performer next year? Why or why not? b. Suppose instead that the fund was among the poorest performers in its comparison group. Would you be more or less likely to believe its relative performance will persist into the following year? Why? 15. Consider a mutual fund with $200 million in assets at the start of the year and with 10 million shares outstanding. The fund invests in a portfolio of stocks that provides dividend income at the end of the year of $2 million. The stocks included in the fund’s portfolio increase in price by 8%, but no securities are sold, and there are no capital gains distributions. The fund charges 12b-1 fees of 1%, which are deducted from portfolio assets at year-end. What is net asset value at the start and end of the year? What is the rate of return for an investor in the fund? 16. The New Fund had average daily assets of $2.2 billion last year. The fund sold $400 million worth of stock and purchased $500 million during the year. What was its turnover ratio? 17. If New Fund’s expense ratio (see the previous problem) was 1.1% and the management fee was .7%, what were the total fees paid to the fund’s investment managers during the year? What were other administrative expenses? 18. You purchased 1,000 shares of the New Fund at a price of $20 per share at the beginning of the year. You paid a front-end load of 4%. The securities in which the fund invests increase in value by 12% during the year. The fund’s expense ratio is 1.2%. What is your rate of return on the fund if you sell your shares at the end of the year? 19. Loaded-Up Fund charges a 12b-1 fee of 1.0% and maintains an expense ratio of .75%. Economy Fund charges a front-end load of 2% but has no 12b-1 fee and an expense ratio of .25%. Assume the rate of return on both funds’ portfolios (before any fees) is 6% per year. How much will an investment in each fund grow to after: a. 1 year. b. 3 years. c. 10 years. 20. City Street Fund has a portfolio of $450 million and liabilities of $10 million. a. If 44 million shares are outstanding, what is net asset value? b. If a large investor redeems 1 million shares, what happens to the portfolio value, to shares outstanding, and to NAV? 21. The Investments Fund sells Class A shares with a front-end load of 6% and Class B shares with 12b-1 fees of .5% annually as well as back-end load fees that start at 5% and fall by 1% for each full year the investor holds the portfolio (until the fifth year). Assume the portfolio rate of return 1. The Fisher equation tells us that the real interest rate approximately equals the nominal rate minus the inflation rate. Suppose the inflation rate increases from 3% to 5%. Does the Fisher equation imply that this increase will result in a fall in the real rate of interest? Explain. PROBLEM SETS 2. You’ve just stumbled on a new dataset that enables you to compute historical rates of return on U.S. stocks all the way back to 1880. What are the advantages and disadvantages in using these data to help estimate the expected rate of return on U.S. stocks over the coming year? Basic 3. You are considering two alternative 2-year investments: You can invest in a risky asset with a positive risk premium and returns in each of the 2 years that will be identically distributed and uncorrelated, or you can invest in the risky asset for only 1 year and then invest the proceeds in a risk-free asset. Which of the following statements about the first investment alternative (compared with the second) are true? a. b. c. d. e. Its 2-year risk premium is the same as the second alternative. The standard deviation of its 2-year return is the same. Its annualized standard deviation is lower. Its Sharpe ratio is higher. It is relatively more attractive to investors who have lower degrees of risk aversion. 4. You have $5,000 to invest for the next year and are considering three alternatives: a. A money market fund with an average maturity of 30 days offering a current yield of 6% per year. b. A 1-year savings deposit at a bank offering an interest rate of 7.5%. c. A 20-year U.S. Treasury bond offering a yield to maturity of 9% per year. What role does your forecast of future interest rates play in your decisions? 5. Use Figure 5.1 in the text to analyze the effect of the following on the level of real interest rates: a. Businesses become more pessimistic about future demand for their products and decide to reduce their capital spending. b. Households are induced to save more because of increased uncertainty about their future Social Security benefits. c. The Federal Reserve Board undertakes open-market purchases of U.S. Treasury securities in order to increase the supply of money. 6. You are considering the choice between investing $50,000 in a conventional 1-year bank CD offering an interest rate of 5% and a 1-year “Inflation-Plus” CD offering 1.5% per year plus the rate of inflation. a. Which is the safer investment? b. Which offers the higher expected return? c. If you expect the rate of inflation to be 3% over the next year, which is the better investment? Why? d. If we observe a risk-free nominal interest rate of 5% per year and a risk-free real rate of 1.5% on inflation-indexed bonds, can we infer that the market’s expected rate of inflation is 3.5% per year? 7. Suppose your expectations regarding the stock price are as follows: State of the Market Boom Normal growth Recession Probability Ending Price .35 .30 $140 110 .35 80 HPR (including dividends) 44.5% 14.0 216.5 Use Equations 5.11 and 5.12 to compute the mean and standard deviation of the HPR on stocks. Intermediate