Question

1. Financial institutions in the U.S. economy

Suppose Van would like to invest $9,000 of his savings.

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

Suppose NanoSpeck, a biotechnology firm, is selling bonds to raise money for a new lab—a practice known as____finance. Buying a bond issued by NanoSpeck would give Van____the firm. In the event that NanoSpeck runs into financial difficulty,____will be paid first.

Suppose instead Van decides to buy 100 shares of NanoSpeck stock.

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

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

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

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

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

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

Answer 1

Answer:

Financial institutions in the U.S. economy

Suppose Van would like to invest $9,000 of his savings.

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

Suppose NanoSpeck, a biotechnology firm, is selling bonds to raise money for a new lab—a practice known as debt finance

Buying a bond issued by NanoSpeck would give Van an IOU promise to pay_the firm.

In the event that NanoSpeck runs into financial difficulty, Van and the other bondholders will be paid first.

Suppose instead Van decides to buy 100 shares of NanoSpeck stock.

Which of the following statements are correct:

a) The price of his shares will rise if NanoSpeck issues additional shares of stock.

False

b) An increase in the perceived profitability of NanoSpeck will likely cause the value of Van's shares to rise.

True

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

True

b and c are correct

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

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