Chapter 17: Q 35. (page 426)
How do bank failures cause the economy to go into
recession?
Bank failures cause the supply of money to reduce because of liquidity shortage.
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Suppose Ford Motor Company issues a five year
bond with a face value of \(5,000 that pays an annual coupon payment of \)150.
a. What is the interest rate Ford is paying on the
borrowed funds?
b. Suppose the market interest rate rises from 3% to 4% a year after Ford issues the bonds. Will the
value of the bond increase or decrease?
What is a bond?
The Darkroom Windowshade Company has
100,000 shares of stock are outstanding. The investors in the firm own the following numbers of shares: investor 1 has 20,000 shares; investor 2 has 18,000 shares; investor 3 has 15,000 shares; investor 4 has 10,000 shares; investor 5 has 7,000 shares, and investors 6 through 11 have 5,000 shares each. What is the minimum number of investors it would take to vote to change the company's top management? If investors 1 and 2 agree to vote together, can they be certain of always getting their way in how the company will be run?
You open a 5-year CD for $1,000 that pays 2% interest, compounded annually. What is the value of that CD at the end of the five years?
Explain what happens in an economy when the
financial markets limit access to capital. How does this affect economic growth and employment?
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