Long-Term Capital Got into Trouble When It Thought That the Spread

question 20

Multiple Choice

Long-Term Capital got into trouble when it thought that the spread between prices on long-term Treasury bonds and long-term corporate bonds was too ________, and bet that this "anomaly" would disappear and the spread would ________.

• A) high; narrow
• B) low; widen
• C) low; narrow
• D) high; widen

Understand why the PPF is typically bowed-out due to the varying adaptability of resources in the production of different goods.

Understand the concept of mixed economy and how resources are allocated in such an economy.

Grasp the principle of rational decision-making and opportunity cost.

Differentiate between different economic systems (pure command, mixed, and pure capitalism) and their characteristics.

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Definitions:

Earnings

The amount by which revenues exceed expenses.

Outstanding Shares

The aggregate amount of a company's shares that have been distributed and are owned by investors.

Stockholders' Equity

Represents the equity stake currently held on a company’s balance sheet by its shareholders, calculated as the company's total assets minus its total liabilities.

Authorized Shares

The maximum number of shares that a corporation is legally permitted to issue, as specified in its articles of incorporation.