Question

1. Financial institutions in the U.S. economy

Suppose Paolo would like to invest $2,000 of his savings.

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

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

Suppose Paolo decides to buy 100 shares of TouchTech stock.

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

The price of his shares will rise if TouchTech issues additional shares of stock.

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

Expectations of a recession that will reduce economy-wide corporate profits will likely cause the value of Paolo's shares to decline.

Alternatively, Paolo 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 ____ (lower/higher) interest rate than a municipal bond issued by a state.

Answer 1

Suppose Paolo would like to invest $2,000 of his savings.

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

Suppose TouchTech, a hand-held computing firm, is selling stocks to raise money for a new lab—a practice known as (equity) finance. Buying a share of TouchTech stock would give Paolo (a claim to partial ownership in) the firm. In the event that TouchTech runs into financial difficulty, (The bondholders) will be paid first.

Suppose Paolo decides to buy 100 shares of TouchTech stock.

The following statements are correct

-Expectations of a recession that will reduce economy-wide corporate profits will likely cause the value of Paolo's shares to decline.

Alternatively, Paolo 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) interest rate than a municipal bond issued by a state.