Question

Financlat institutions in the U.S. economy Suppose Derrick decides to use $5,500 currenty held as savings to make s finsncial investment. One method of making a financial investment is the purchase of stock or bonds from a private company. Suppose Arcadia, a biomedical tesearch firm, is selling bonds to raise money for a new lab. This practice is calied _________ finance. Buying a bond issued by Arcadia would give Derrick __________ the firm. In the event that Arcadia runs into financial difficulty______ will be paid first.

Answer 1

Derrick using his savings to buy bonds from a private company is engaging in debt finance, which makes him a creditor. If the company faces financial trouble, bondholders are prioritized for repayment.

Step-by-step explanation:

When Derrick decides to use $5,500 currently held as savings to make a financial investment by purchasing bonds from a private company like Arcadia, a biomedical research firm, this practice is called debt finance. Buying a bond issued by Arcadia would give Derrick a creditor's stake in the firm. In the event that Arcadia runs into financial difficulty, bondholders will be paid first, before shareholders, as they have a fixed claim on the company's assets.