1. Financial institutions in the U.S. economy

Suppose Osvaldo decides to use $8,000 currently held as savings to make a financial investment.

One method of making a financial investment is the purchase of stock or bonds from a private company.

Suppose Arcadia, a biomedical research firm, is selling stocks to raise money for a new lab. This practice is called (equity or debt)finance. Buying a share of Arcadia stock would give Osvaldo (a claim to partial ownership or an IOU, or promise to pay, from) the firm. In the event that Arcadia runs into financial difficulty (the bondholders, Osvaldo and the other stockholders)will be paid first.

Suppose Osvaldo chooses to buy 250 shares of Arcadia stock.

Which of the following statements are correct?Check all that apply.

• The price of his shares will rise if Arcadia issues additional shares of stock.
• The Dow Jones Industrial Average is an example of a stock exchange where he can purchase Arcadia stock.
• An increase in the perceived profitability of Arcadia will likely cause the value of Osvaldo's shares to rise.

Alternatively, Osvaldo could undertake their financial investment by purchasing bonds issued by the U.S. government.

Assuming that everything else is equal, a U.S. government bond that matures 10 years from now most likely pays a (higher, lower)interest rate than a U.S. government bond that matures 30 years from now.