Saving, Investment, and the Financial System 1

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Unformatted text preview: 1. Financial insfimfions in file US. economy Suppose Tim would like to invat $1,000 of his savings. One way of invating is to purchase stock or bonds from a private company. Suppose TouchTech, a hand—held computing firm, is selling stocks to raise money Fora new lab—a practice known as equityr I finance. Buying a share ofTouchTech stock would give Tim a claim to parlial ownership in I the firm. In the event that TouchTech runs into financial difficulty, flle bondholders I will be paid first. Suppose Tim decida to buy 100 shara of TouchTech stock. Which of the following statements are correct? Check all! that apply I I The Dow Jona Industrial Average is an example of a stock exchange where he can purchase TouchTech stock. I E An increase in the perceivchprofitability of TouchTech will likely cause the value of Tim's shara to rise. I . The price of his shara will rise if TouchTech issua additional shara of stock. Alternatively, Tim could invest by purchasing bonds issued by the U.S. government. Assuming that everything else is equal, a U.S. government bond that matura 10 years From now most likely pays a lower 1’ interat rate than a U.S. government bond that maturm 30 years From now. ...
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  • Spring '09
  • NERVO
  • U.S. government bond, ECON-2301, Tim decida, issua additional shara

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