Question

Suppose Kenji would like to use $3,000 of his savings to make a financial investment. One way of making a financial investment is to purchase stock or bonds from a private company. Suppose NanoSpeck, a biotechnology firm, is selling stocks to raise money for a new lab—a practice known as ________finance. Buying a share of NanoSpeck stock would give Kenji__________ the firm. In the event that NanoSpeck runs into financial difficulty, __________will be paid first. Suppose Kenji decides to buy 100 shares of NanoSpeck stock.

A) NanoSpeck earns revenue when Kenji purchases 100 shares, even if he purchases them from an existing shareholder.

B) Expectations of a recession that will reduce economy-wide corporate profits will likely cause the value of Kenji's shares to decline.

C) An increase in the perceived profitability of NanoSpeck will likely cause the value of Kenji's shares to rise.

Answer 1

Answer:

Selling stocks to raise money is a practice known as equity financing. Stocks are equity. Equity are assets minus liabilities.

Stocks would give Kenji partial ownership of the firm. The amount of ownership demends of how many stocks he buys.

If NanoSpeck runs into financial difficulty, people that hold bonds will be paid first than people who hold stocks. Bonds, contraty to stocks, are liablities, not equity, and when a company declares bankruptcy, it has to pay liablities first, and if there is any money left, it then pays to stockholders.

A) Untrue - If Kenji buys stocks from another stockholder, the revenue goes to the stockholder, not to NanoSpeck.

B) True - The value of stocks largely depend on economic expectations. If the economy is expected to enter a recession, the value of Kenji's stock will most likely go down.

C) True - If the market considers that NanoSpeck is in a healthy financial position, then, the Nano Speck stocks that Kenji holds will likely rise in value.

Explanation: