Briefly explain why bonds are especially attractive to investors seeking stability while stocks are especially attractive to investors seeking capital gains.
What will be an ideal response?
Student responses may vary but should accurately describe how bonds are generally more secure than stocks. The obligation to bondholders is of higher legal priority than that of stockholders. Before any dividends can be paid, even to owners of preferred stock, the interest obligations to bondholders must be met. If a company is liquidated, bondholders must be paid the full face value of their bond holding before any disbursements can be made to stockholders. All of this means that bondholders have greater financial security than stockholders. However, bondholders’ interest payments are fixed in value and the value of their bonds do not appreciate. Stockholders do not have guaranteed interest payments, but if a company is doing well it may offer divided payments well above the interest payments bondholders receive. The value of the stock itself is also more likely to increase than the value of a bond, although there is a risk that the stock may drop in value as well.
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Distinguish the terms price ceiling and price floor.
What will be an ideal response?
Haiti was once a heavily forested country. Today, 80 percent of Haiti's forests have been cut down, primarily to be burned to create charcoal. The reduction in the number of trees has lead to devastating floods when it rains heavily
This is an example of A) human greed. B) the consequences of not having a market economic system. C) the tragedy of the commons. D) tragic externalities.
The greater the social immobility is within a country, the greater the chance that human talent and skills will not go to waste
Indicate whether the statement is true or false
Refer to the above payoff matrix for the profits (in $ millions) of two firms (A and B) making a decision to advertise or not. Which of the following is the outcome of the dominant strategy without cooperation?
A. Firm A chooses to advertise while firm B chooses not to advertise. B. Firm A chooses not to advertise while firm B chooses to advertise. C. There is no dominant strategy in this scenario. D. Both firm A and firm B choose to advertise.