Question

Suppose Jacques would like to invest $10,000 of his savings.

One way of investing is to purchase stock or bonds from a private company.

Suppose RoboTroid, a robotics firm, is selling stocks to raise money for a new lab—a practice known as(debt/equity) finance. Buying a share of RoboTroid stock would give Jacques (an IOU or promise to pay, from/a claim to partial ownership in) the firm. In the event that RoboTroid runs into financial difficulty,(Jacques and other stockholders/the bondholders) will be paid first.

Suppose Jacques decides to buy 100 shares of RoboTroid stock.

Which of the following statements are correct? Check all that apply.

The Dow Jones Industrial Average is an example of a stock exchange where he can purchase RoboTroid stock.

An increase in the perceived profitability of RoboTroid will likely cause the value of Jacques's shares to rise.

Expectations of a recession that will reduce economywide corporate profits will likely cause the value of Jacques's shares to decline.

Alternatively, Jacques could invest by purchasing bonds issued by the U.S. government.

Assuming that everything else is equal, a corporate bond issued by an electronics manufacturer most likely pays a(higher/lower) interest rate than a municipal bond issued by a state.

Answer 1

Solution:-

Suppose Jacques would like to invest $10,000 of his savings. One way of investing is to purchase stock or bonds from a private company:-

Suppose RoboTroid, a robotics firm, is selling stocks to raise money for a new lab—a practice known as equity finance. Buying a share of RoboTroid stock would give Jacques a claim to partial ownership in the firm. In the event that RoboTroid runs into financial difficulty, the bondholders will be paid first.

Which of the following statements are correct:-

An increase in the perceived profitability of RoboTroid will likely cause the value of Jacques's shares to rise.

Expectations of a recession that will reduce economywide corporate profits will likely cause the value of Jacques's shares to decline.