EBK PRINCIPLES OF ECONOMICS
EBK PRINCIPLES OF ECONOMICS
7th Edition
ISBN: 8220102958395
Author: Mankiw
Publisher: CENGAGE L
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Chapter 27, Problem 7PA
To determine

When the shareholder will demand high return.

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You are thinking about purchasing an elegant shirt by mail. Shirts Galore offer an unlimited return policy while Over the Tops will refund 80 percent of the value of the shirt if you return it. Which of the following statements is most likely to be true? Select one: Shirts Galore's shirts are more likely to be high quality, while Over the Top's shirts are less likely to be high quality a. b. Both companies' shirts are more likely to be high quality С. Shirts Galore's shirts are less likely to be high quality, while Over the Top's shirts are more likely to be high quality d. neither company's shirts are more likely to be high quality
What will happen if two assets are earning the same expected return, but one is riskier than the other?
Two restaurants are on the same block. One has been opened for 10 years and is a thriving business. The other one has been open for only a year. They both want to expand. When the two owners go to the local bank looking for a loan, which one is likely to get a lower interest rate? Explain in terms of the risk-return principle.
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