1. Financial institutions in the U.S. economy Suppose Rajiv would like to invest $4,000 of his...

1. Financial institutions in the U.S. economy

Suppose Rajiv would like to invest $4,000 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/debt) finance. Buying a share of RoboTroid stock would give Rajiv ( an IOU, or promise to pay,from/a claim to partial ownership in) the firm. In the event that RoboTroid runs into financial difficulty,( Rajiv and the other stockholders/the bondholders) will be paid first.

Suppose Rajiv decides to buy 100 shares of RoboTroid stock.

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

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

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

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

Alternatively, Rajiv could invest by purchasing bonds issued by the government of Japan.

Assuming that everything else is equal, a bond issued by the government of Japan most likely pays a (higher/lower) interest rate than a bond issued by a government that is engaged in a civil war.

Expert Solution

Rahul Sunny answered 2 years ago

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