Question

1. Financial institutions in the U.S. economy Suppose Dmitri would like to use $6,000 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 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 Dmitri the firm. In the event that Nano Speck runs into financial difficulty, will be paid first. Suppose instead Dmitri decides to buy 100 shares of NanoSpeck stock. Which of the following statements are correct? Check all that apply. Expectations of a recession that will reduce economywide corporate profits will likely cause the value of Dmitri's shares to decline. An increase in the perceived profitability of Nano Speck will likely cause the value of Dmitri's shares to rise. The price of his shares will rise if NanoSpeck issues additional shares of stock. Alternatively, Dmitri could make a financial investment by purchasing bonds issued by the U.S. government. interest rate than a Assuming that everything else is equal, a U.S. government bond that matures 10 years from now most likely pays a U.S. government bond that matures 30 years from now.

Answer 1

Suppose NanoSpeck, a biotechnology firm, is selling stocks to raise money for a new lab a practice known as debt finance. Buying a bond issued by NanoSpeck would give Dmitri an IOU or promise to pay from the firm. In the event that NanoSpeck runs into financial difficulty, bond holders (Bond holders are the company's liability because the company needs to repay the debt of the bondholders along with the interest rates) will be paid first. The statement that is correct is as follows: Expectations of a recession that will reduce economywide corporate profits will likely cause the value of Dmitri's shares to decline. An increase in the perceived profitability of NanoSpeck will likely cause the value of Dmitri's share to rise Thus, statement A and B are correct. Assuming that everything else is equal, a U.S. government bond that matures 10 years from now most likely pays a lower interest rate than a U.S. government bond that matures 30 years from now.

Answer 2

Suppose NanoSpeck, a biotechnology firm, is selling stocks to raise money for a new lab—a practice known asequity   finance. Buying a share of NanoSpeck stock would give Andrewa claim to partial ownership in   the firm. In the event that NanoSpeck runs into financial difficulty,the bondholders   will be paid first.

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

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

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