Recession that will reduce economy-wide corporate profits

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Reference no: EM131113105

Suppose Jake would like to invest $3,000 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 1) __________ (DEBT or EQUITY) finance. Buying a share of RoboTroid stock would give Jake 2)__________ (AN IOU or CLAIM TO PARTIAL OWNERSHIP) the firm. In the event that RoboTroid runs into financial difficulty, 3) ________ (BOND HOLDERS or JAKE AND STOCKHOLDERS) will be paid first.

Suppose Jake decides to buy 100 shares of RoboTroid stock.

Which of the following statements are correct? LIST ALL THAT APPLY.

A) RoboTroid earns revenue when Jake purchases 100 shares, even if he purchases them from an existing shareholder.

B) Expectations of a recession that will reduce economy-wide corporate profits will likely cause the value of Jake's shares to decline.

C) An increase in the perceived profitability of RoboTroid will likely cause the value of Jake's shares to rise.

Alternatively, Jake could invest by purchasing bonds issued by the U.S. government.

Assuming that everything else is equal, a U.S. government bond that matures 30 years from now most likely pays a 4) ________ (HIGHER or LOWER) interest rate than a U.S. government bond that matures 10 years from now

Reference no: EM131113105

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