Chapter 17: 23RQ (page 426)
What is a mutual fund?
It is a well-managed financial tool in which investors invest their money and the fund manages their money.
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If you owned a small firm that had become
somewhat established, but you needed a surge of financial capital to carry out a major expansion, would you prefer to raise the funds through borrowing or by issuing stock? Explain your choice.
Answer these three questions about early-stage corporate finance:
(a) Why do very small companies tend to raise money from private investors instead of through an IPO?
(b) Why do small, young companies often prefer an IPO to borrowing from a bank or issuing bonds?
(c) Who has better information about whether a small firm is likely to earn profits, a venture capitalist or a potential bondholder, and why?
If you owned a small firm that had become somewhat established, but you needed a surge of financial capital to carry out a major expansion, would you prefer to raise the funds through borrowing or by issuing stock? Explain your choice.
Is investing in housing always a very safe investment?
Investors sometimes fear that a high-risk investment is especially likely to have low returns. Is this fear true? Does a high risk mean the return must be low?
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