a.
Whether one would be more or less willing to buy a stock.
a.
Explanation of Solution
One would be less willing to buy a company’s stock if his/her wealth falls because if wealth falls then the individual would be extra careful about decisions related to investing his/her money. A fall in wealth would force investors to not invest in such options, where the chance of losing money is high.
Hence, an individual would be less willing to invest in a stock, if his/her wealth falls.
Introduction: Stock refers to a type of security that gives the investor ownership right in a company. There are two main types of stock: one is common stock, and another is
b.
Whether one would be more or less willing to buy a stock.
b.
Explanation of Solution
If one has an expectation that the stock price is going to rise, then he will be more willing to purchase the stock because he can sell the purchased stock after some time at a higher price to earn more financial benefit.
Hence, an individual would be more willing to invest in a stock, if he is expecting appreciation in price.
c.
Whether one would be more or less willing to buy a stock.
c.
Explanation of Solution
If a bond market becomes more liquid then individuals would be less willing to invest in stock because the stock market will become less liquid in comparison to the bond market. An investor always likes to invest more in that option which is of more liquid nature.
Hence, investors would be less willing to invest in a stock if the bond market becomes more liquid.
d.
Whether one would be more or less willing to buy a stock.
d.
Explanation of Solution
One would be less willing to buy a company’s stock if one thinks that the price of gold is going to rise because, in such a situation, an individual can earn more money by purchase of gold now and selling it later at profit.
Hence, one would be less willing to invest in a stock if one thinks that the price of gold is going to rise.
e.
Whether one would be more or less willing to buy a stock.
e.
Explanation of Solution
If the prices in the bond market become more volatile, then one would be more willing to invest in a stock because in such a situation stock market will become less risky in comparison to the bond market. So, normally every investor would like to invest in that option which will involve less risk.
Hence, investors would be more willing to invest in a stock if the prices in the bond market become more volatile.
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Chapter 5 Solutions
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