1. Financial institutions in the U.S. economy Suppose Van would like to use $9,000 of his savings to make a financial investment. One way of making a financial investment is to purchase stock or bonds from a private company. Suppose RoboTroid, a robotics firm, is selling bonds to raise money for a new lab-a practice known as finance. Buying a bond issued by RoboTroid would give Van v the firm. In the event that RoboTroid runs into financial difficulty, will be paid first. Suppose instead Van decides to buy 100 shares of RoboTroid stock. Which of the following statements are correct? Check all that apply. O RoboTroid earns revenue when Van purchases 100 shares, even if he purchases them from an existing shareholder. O The Dow Jones Industrial Average is an example of a stock exchange where he can purchase RoboTroid stock. O Expectations of a recession that will reduce economywide corporate profits will likely cause the value of Van's shares to decline. Alternatively, Van could make a financial investment 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 interest rate than a municipal bond issued by a state.

1. Financial institutions in the U.S. economy Suppose Van would like to use $9,000 of his savings to make a financial investment. One way of making a financial investment is to purchase stock or bonds from a private company. Suppose RoboTroid, a robotics firm, is selling bonds to raise money for a new lab-a practice known as finance. Buying a bond issued by RoboTroid would give Van v the firm. In the event that RoboTroid runs into financial difficulty, will be paid first. Suppose instead Van decides to buy 100 shares of RoboTroid stock. Which of the following statements are correct? Check all that apply. O RoboTroid earns revenue when Van purchases 100 shares, even if he purchases them from an existing shareholder. O The Dow Jones Industrial Average is an example of a stock exchange where he can purchase RoboTroid stock. O Expectations of a recession that will reduce economywide corporate profits will likely cause the value of Van's shares to decline. Alternatively, Van could make a financial investment 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 interest rate than a municipal bond issued by a state.

ECON MICRO

5th Edition

ISBN:9781337000536

Author:William A. McEachern

Publisher:William A. McEachern

Chapter13: Capital, Interest, Entrepreneurship, And Corporate Finance

Section: Chapter Questions

Problem 4.8P

See similar textbooks

Similar questions

Answer these three questions about early-stage corporate finance: Why do very small companies tend to raise money from private investors instead of through an IPO? Why do small, young companies often prefer an IPO to borrowing from a bank or issuing bonds? Who has better information about whether a small firm is likely to earn profits, a venture capitalist or a potential bondholder, and why?
A mortgage 105m is a loan that a person makes to purchase a house. Table 19.11 provides a list of the mortgage interest rate for several different years and the rate of inflation for each of those years. In which years would it have been better to be a person borrowing money from a bank to buy a home? In which years would it have been better to be a bank lending money?
Why can firms not just use their own profits for financial capital, with no need for outside investors?
Imagine that a local water company issued 10,000 ten-year bond at an interest rate of 6. You are thinking about buying this bond one year before the end of the ten years, but interest rates are now 9. Given the change in interest rates, would you expect to pay more or less than 10,000 for the bond? Calculate what you would actually be willing to pay for this bond.
When do firms receive money from a stock sale in their firm and when do they not receive money?
From a firms point of view, how is a bond similar to a bank loan? How are they different?
Suppose Ford Motor Company issues a five year bond with a face value of 5,000 that pays an annual coupon payment of $150. What is the interest rate Ford is paying on the borrowed funds? Suppose the market interest rate rises from 3 to 4 a year after Ford issues the bonds. Will the value of the bond increase or decrease?
What are some ways that someone looking for a loan might reassure a bank that is faced with imperfect information about whether the borrower will repay the loan?
If you owned a small firm that had become somewhat established, but you needed a surge of financial capital to cant out a major expansion, would you prefer to raise the funds through borrowing or by issuing stock? Explain your choice.
What are some reasons why the investment strategy of a 30-year-old might differ flow the investment strategy of a 65-year-old?