Question

1. Financial institutions in the U.S. economy Suppose Clancy 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 stocks to raise money for a new lab—a practice known as finance. Buying a share of RoboTroid stock would give Clancy the firm. In the event that RoboTroid runs into financial difficulty, will be paid first. Suppose Clancy decides to buy 100 shares of RoboTroid stock. Which of the following statements are correct? Check all that apply.

(A) The Dow Jones Industrial Average is an example of a stock exchange where he can purchase RoboTroid stock.
(B) The price of his shares will rise if RoboTroid issues additional shares of stock.
(C) Expectations of a recession that will reduce economywide corporate profits will likely cause the value of Clancy's shares to decline.

Alternatively, Clancy could make a financial investment by purchasing bonds issued by the government of Japan. Assuming that everything else is equal, a bond issued by a government that is engaged in a civil war most likely pays a _______ interest rate than a bond issued by the government of Japan.

Answer 1

A and C. "A Lower Interest Rate".

Step-by-step explanation:

In the example given in the question where Clancy would like to invest in a robotics company named RoboTroid by buying their stocks, we can say that out of the given options;

A is correct as stocks of companies can be bought/sold on stock exchange markets such as Dow Jones or Nasdaq.

B is false because if the company RoboTroid issues additional shares of stock, shareholders and the stock prices experience an effect named "Share Dilution" which almost always causes the prices to decline.

C is correct, a recession that reduces corporate profits can cause the share values to decline.

If Clancy makes an investment by purchasing the bonds issued by Japan, we can say that if the government is engaged in a civil war, they are most likely to have a lower interest rate than a band issued by the government of Japan.

I hope this answer helps.