Question

For each of the following, is it an example of investment spending, investing in financial assets, or investing in physical assets? a. Rupert Moneybucks buys 100 shares of existing Coca-Cola stock. b. Rhonda Moviestar spends \(\$ 10\) million to buy a mansion built in the $1970 \mathrm{~s}$. c. Ronald Basketballstar spends \(\$ 10\) million to build a new mansion with a view of the Pacific Ocean. d. Rawlings builds a new plant to make catcher's mitts. e. Russia buys \(\$ 100\) million in U.S. government bonds.

Short answer

Question: Classify the following types of investments into investment spending, investing in financial assets, or investing in physical assets: a) Rupert Moneybucks buys 100 shares of existing Coca-Cola stock. b) Rhonda Moviestar spends $10 million to buy a mansion built in the 1970s. c) Ronald Basketballstar spends $10 million to build a new mansion with a view of the Pacific Ocean. d) Rawlings builds a new plant to make catcher's mitts. e) Russia buys $100 million in U.S. government bonds. Answer: a) Investing in financial assets b) Investing in physical assets c) Investment spending d) Investment spending e) Investing in financial assets

Step-by-step solution

Solution for (a)

Rupert Moneybucks buys 100 shares of existing Coca-Cola stock. This is an example of investing in financial assets, as he is purchasing existing shares in a company.

Solution for (b)

Rhonda Moviestar spends \(\$ 10\) million to buy a mansion built in the \(1970 \mathrm{~s}\). This is an example of investing in physical assets, as a mansion is a tangible asset.

Solution for (c)

Ronald Basketballstar spends \(\$ 10\) million to build a new mansion with a view of the Pacific Ocean. This is an example of investment spending, as he is spending money to create a new asset: the new mansion.

Solution for (d)

Rawlings builds a new plant to make catcher's mitts. This is an example of investment spending, as the company is building a new plant to create an asset that will help it produce goods.

Solution for (e)

Russia buys \(\$ 100\) million in U.S. government bonds. This is an example of investing in financial assets, as the bonds are financial instruments.