EBK PRINCIPLES OF ECONOMICS
7th Edition
ISBN: 8220102958395
Author: Mankiw
Publisher: CENGAGE L
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Question
Chapter 26, Problem 2QR
To determine
Why diversification of holdings is recommended and which institution does it for the public.
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Why is it important for people who own stocks and bonds to diversify their holdings? What type of financial institution makes diversification easier?
Which has a higher average return over time: stocks, bonds, or a savings account? Explain your answer.
Would the interest rate increase be more likely to hurt or help the financial institution’s profitability?
Chapter 26 Solutions
EBK PRINCIPLES OF ECONOMICS
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- Economists assert that financial markets serve the function of efficiently allocating capital. What is meant by the function? Explain and include an example.arrow_forwardWhich type of financial intermediary provides individual investors with professional management of their money and diversification in order to limit the risk of investing? A. mutual funds B. insurance companies C. hedge funds D. investment banksarrow_forwardCan a financial market be complete and allow for arbitrage opportunities at the same time?arrow_forward
- If you owned a small firm that had become somewhat established, but you needed a surge of financial capital to carry out a major expansion, would you prefer to raise the funds through borrowing or by issuing stock? Explain your choice.arrow_forwardExplain the difference between financial institutions and financial markets, please give examples.arrow_forwardYoung people with little wealth should not invest money in risky assets such as the stock market, because they can’t afford to lose what little money they have.” Do you agree or disagree with this statement? Why?arrow_forward
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