Suppose Edison would like to invest $10,000 of his savings.
One way of investing is to purchase stock or bonds from a private company.
Suppose TouchTech, a hand-held computing firm, is selling bonds to raise money for a new labAc€??a practice known as (equity or debt) finance. Buying a bond issued by TouchTech would give Edison (an IOU, or promise to pay, from or a claim to partial ownership in) the firm. In the event that TouchTech runs into financial difficulty, (the stockholders or Edison and the other bondholders) will be paid first.
Suppose instead Edison decides to buy 100 shares of TouchTech stock.
Which of the following statements are correct?
TouchTech earns revenue when Edison purchases 100 shares, even if he purchases them from an existing shareholder.
Expectations of a recession that will reduce economy-wide corporate profits will likely cause the value of Edison’s shares to decline.
An increase in the perceived profitability of TouchTech will likely cause the value of Edison’s shares to rise.
Alternatively, Edison could invest by purchasing bonds issued by the government of Japan.
Assuming that everything else is equal, a bond issued by a government that is engaged in a civil war most likely pays a (higher or lower) interest rate than a bond issued by the government of Japan.
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