Question

1. Financial institutions in the U.S. economy Suppose Rajiv would like to invest $9,000 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 finance. Buying a share of RoboTroid stock would give Rajiv the firm. In the event that RoboTroid runs into financial difficulty, 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. The Dow Jones Industrial Average is an example of a stock exchange where he can purchase RoboTroid stock. RoboTroid earns revenue when Rajiv 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 Rajiv's shares to decline. Alternatively, Rajiv 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.

FILL IN THE BLANK CHOICES:

1) practice known as (Debt OR equity)

2) would give Rajiv (an IOU, or promise to pay, from OR a claim to partial ownership in)

3) In the event that RoboTroid runs into financial difficulty, Rajiv and the other stockholders OR the bondholders will be paid first.

WHICH OF THE STATEMENTS ARE CORRECT

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

Answer 1

a. Debt financing.

This practice of arranging funds from the market for new investment is known as debt financing.

b. A claim to partial ownership

This is because the shareholder has invested the money in the business investment.

c. Bondholders.

Bondholders are paid first in case of any financial crisis.

d. Option C is correct

Recession decreases the aggregate demand in the economy which creates a shortage of demand for money and thus the value of shares decreases.

e. Lower

corporate bond pays a higher return than a government bond.