If Wealth Increases,the Demand for Stocks ________ and That of Long-Term

question 6

Multiple Choice

If wealth increases,the demand for stocks ________ and that of long-term bonds ________,everything else held constant.

• A)increases;increases
• B)increases;decreases
• C)decreases;decreases
• D)decreases;increases

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Definitions:

Exercise Price

The predetermined price at which the holder of an option can buy (call) or sell (put) the underlying security or commodity.

Put Option

A financial contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying asset at a set price before or on a specified date.

Convertible Bond

A bond that offers the option to be exchanged for a set number of shares in the issuing company at specific intervals throughout its duration, typically at the choice of the person holding the bond.

Discount Rate

The interest rate used to discount future cash flows to present value, reflecting the time value of money and investment risk.