Economics Study Set 20

Business

Quiz 31 :

The Stock Market: Its Function, Performance, and Potential as an Investment Opportunity.

Quiz 31 :

The Stock Market: Its Function, Performance, and Potential as an Investment Opportunity.

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A friend just inherited $50,000. She informs you of her investment plans and asks for your advice. "I want to put it into the stock market and use it for my retirement in 30 years. What do you think is the best plan that will provide high returns at a relatively low risk?" What answer would you give? Explain.
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a. Since pork can be considered as a substitute for beef hence due to higher price for pork people would like to substitute and beef's consumption demand would rise.
b. We know that higher consumer income has a positive relationship with normal good's demand, since beef is a normal good and hence its demand would increase owing to a rise in income.
c. Higher price for cattle food would raise the cost of production of beef. As a result price of beef would rise and as a result of it demand for beef would be reduced.
d. Panic or news of disease would reduce the consumers demand for beef.
e. An increase in the price of beef would reduce the consumer demand for beef, due to the negative relationship of own price and quantity demanded.

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Suppose that more expansionary monetary policy leads to inflation and higher nominal interest rates. How is this likely to affect the value of stocks? Explain.
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While constructing a demand curve mainly three things remain constant. One is the consumer's income; two is the price of related i.e. complementary as well as substitute goods and third is the taste and preference of the consumer.
The rationale for negatively sloped demand curve is as follows- keeping other things constant if own price of a commodity changes the quantity demanded for that commodity will change in the opposite way. It implies if the own price increases quantity demanded would fall and if own price falls quantity demanded of the commodity would rise.

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Google stock rose from $100 in 2004 to more than $900 per share in 2013. Google has made sizable profits but never paid a dividend. Why were people willing to pay such a high price knowing that they might not get dividends for many years?
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If an investment adviser gives you some hot new stock tip, is it likely to be a "sure thing"? Why or why not? If you have a stockbroker and purchase the stocks promoted by the broker, are you likely to earn a high return on your stock investments? Why or why not?
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The stocks of some corporations that have never made a profit, especially those in high-technology industries, have risen in price. What causes investors to be willing to buy these stocks?
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What is an indexed equity mutual fund? What is a managed equity mutual fund? How will the administrative costs of the two differ?
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What is the random walk theory of stock prices? What does it indicate about the ability of "experts" to forecast accurately the future direction of stock prices?
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Are stocks a risky investment? How can one reduce the risk accompanying stock market investments?
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