Principles of Economics, 7th Edition (MindTap Course List)
7th Edition
ISBN: 9781285165875
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 27, Problem 4QR
To determine
Risk and return in stock and government bond.
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Is common stocks or bonds best for a high risk firm? Why?
How much liability does stockholder assume?
Susie works two jobs so she can pay tuition without using loans, helps her sick mother with housework and errands, and is attending college. She knows she should be saving for retirement. Which strategy is best for Susie?
Select one: a. Auto-invest a small fixed amount in a low-cost S&P 500 index fund every month b. Buy shares of the top 5 performing stocks every month. Switch which companies she's investing in based on their monthly performance c. Wait until she's got more disposable income to invest -- if she starts now, she won't be investing enough to make it worthwhile d. Pick one company's stock -- maybe her favorite store or restaurant -- and invest the same amount every month
Chapter 27 Solutions
Principles of Economics, 7th Edition (MindTap Course List)
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- How might the magnitude of the market risk premium impact someone's desire to buy stocks?arrow_forwardYour bank account pays an interest rate of 8 percent. You are considering buying a share of stock in XYZ Corporation for $110. After 1, 2, and 3 years, it will pay adividend of $5. You expect to sell the stock after 3 years for $120. Is XYZ a good investment? Support your answer with calculations.arrow_forwardGive your opinion on the current situation of stock market right now. Would it be profitable to invest in stocks?arrow_forward
- Why is it important for people who own stocks and bonds to diversify their holdings? What type of financial institution makes diversification easier?arrow_forwardWhat is a bond? A certificate representing a loan from an investor to a corporation or government entity that makes fixed payments for a set time and eventually pays back the loan in full. A certificate of ownership in a corporation with the right to a percentage of the earnings. A payment for an investor to a corporation for the rights to future profits. A group of stocks sold together for a set price.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_forward
- Young 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_forwardWhat are the three most important personal factors and the three most important economic factors that affect financial planning decisions?arrow_forwardThe main advantage of mutual funds is that theyprovidea. a return insured by the government.b. an easy way to hold a diversified portfolio.c. an asset that is widely used as the medium ofexchange.d. a way to avoid fluctuations in stock and bondprices.arrow_forward
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