Question

T/F

18. ____ The annual return may only be calculated for stock, not bonds.

19.  ____ A cash deficit unit is a party that needs financing (debt or equity) from the financial
      markets.

20. ____ One of the risks of borrowing money is the possibility of not being able to pay it back
   as agreed.

21.  ____ If a financial security has higher risk than another security, the investor in the high-
                 risk security expects a higher return than that for the comparatively
                 low-risk security.    

Answer 1

18. False - Annual return is calculated for both Stocks and bonds.

19. True - Deficit units refer to units that they have spent more funds than they received. So the deficit units acquired finance from finance markets.

20. True - Risks associated with borrowing money are

1. Not being able to make payments

2. Getting too deeply into debt.

3. Hurting ability to borrow in future.

So one of the risk of borrowing is not being to repay as agreed.

21. True - the relationship between risk and required rate of return is risk-return relationship. It is positive relation because the more risk assumed people usually demand more returns. So the investors in the high risk security expects higher return comparatively low risk security.