Question

Suppose Alex would like to use $8,000 of his savings to make a financial investment.

One way of making a financial investment 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 Alex (An iou or promise to pay from, A claim to partial ownership in) the firm. In the event that RoboTroid runs into financial difficulty, (Alex and the stock holders, the bondholders) will be paid first.

Suppose Alex decides to buy 100 shares of RoboTroid stock.

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

RoboTroid earns revenue when Alex purchases 100 shares, even if he purchases them from an existing shareholder.

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

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

Alternatively, Alex could make a financial investment by purchasing bonds issued by the U.S. government.

Assuming that everything else is equal, a U.S. government bond that matures 30 years from now most likely pays a (Higher/ Lower) interest rate than a U.S. government bond that matures 10 years from now.

Answer 1

Answer :

Suppose RoboTroid, a robotics firm, is selling stocks to raise money for a new lab—a practice known as Debt Finance.

Buying a share of RoboTroid stock would give Alex An iou or promise to pay from, the firm. In the event that RoboTroid runs into financial difficulty, Alex and the stock holders, will be paid first.

The statement that is correct is as follows :

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

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

Assuming that everything else is equal, a U.S. government bond that matures 30 years from now most likely pays a  Lower interest rate than a U.S. government bond that matures 10 years from now.

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