Chapter 21: Q. 16 (page 484)
Explain the basic differences between a share of stock and a bond.
Share of a stock is an official claim to share the corporation's future profit.
Bond is the official claim against the firm.
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Discuss how the interest rate performs a key role in allocating resources and calculate the present discounted value of a payment to be received at a future date
Explain how the following events would likely affect the relevant interest rate.
a. A major bond-rating agency has improved the risk rating of a developing nation.
b. The government has passed legislation requiring bank regulators to significantly increase the paperwork required when a bank makes a loan.
A British pharmaceutical company spent several years and considerable funds on the development of a treatment for HIV patients. Now, with the protection afforded by patent rights, the company has the potential to reap enormous gains. The government, in response, has threatened to tax away any economic rents the company may earn. Is this a sensible policy? Why or why not? (Hint: Contrast the short-run and long-run effects of taxing away the economic rents.)
Explain the difference between the dividends of a corporation and the profits of a proprietorship or partnership, particularly in their tax treatment.
Suppose that the interest rate in Japan is only percent, while the comparable rate in the United States is localid="1651988274892" percent. Japan's rate of inflation is percent, while the U.S. inflation rate is percent. Which economy has the higher real interest rate?
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