Chapter 17: Q.32 (page 426)
Explain why a financial investor in stocks cannot earn high capital gains simply by buying companies with a demonstrated record of high profits.
Because price per share increase is incredibly less.
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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.
Calculate the equity each of these people has in his or her home:
a. Fred just bought a house for \(200,000 by putting 10% as a down payment and borrowing the rest from the bank.
b. Freda bought a house for \)150,000 in cash, but if she were to sell it now, it would sell for \(250,000.
c. Frank bought a house for \)100,000. He put 20% down and borrowed the rest from the bank. However, the value of the house has now increased to \(160,000 and he has paid off \)20,000 of the bank loan.
Is investing in housing always a very safe investment?
How is buying a house to live in a type of financial investment?
Explain how a company can fail when the safeguards that should be in place fail.
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