When the Current Social Security Surpluses End and the Bonds

question 64

Multiple Choice

When the current Social Security surpluses end and the bonds in the trust funds are reduced in order to make payments to retirees, the financing for the redemption of the trust fund bonds will come from

• A) higher taxes or more government borrowing.
• B) the surplus funds deposited in government banking accounts.
• C) equity capital being liquidated.
• D) the sale of private equities and securities that the government has been purchasing with the funds.

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Definitions:

Stock Options

Financial derivatives that give the holder the right, but not the obligation, to buy or sell shares of a stock at a specified price within a given time period.

Warrants

Options issued by a company that give the holder the right to purchase the company's stock at a specified price before a certain date.

Diluted Earnings

Earnings per share calculated by including the effects of all potential dilutive securities, which could decrease earnings per share by increasing the number of shares outstanding.

Potential Dilutive Effect

The possible impact on a company’s earnings per share if convertible securities were converted into common stock, often considered in financial analysis.