Buddy Has $2000 in a Checking Account and Wants to Buy

question 35

Multiple Choice

Buddy has $2000 in a checking account and wants to buy a new Macbook for $1100.Buddy decides he needs the money in his account to pay his bills next month and so puts the $1100 on his credit card and pays it off gradually over the next several months.Buddy choosing to "save" his cash on hand for everyday expenses is:

• A)irrational,since money is fungible.
• B)rational,since Buddy can now pay all his bills with a small credit card payment each month.
• C)going to make Buddy wealthier in the long run.
• D)rational,since he has his new computer and has money in the bank.

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Definitions:

Offering Price

The price at which new shares are offered to the public by an issuer or an underwriter in initial public offerings or secondary offerings.

Dilution

Loss in existing shareholders’ value, in terms of either ownership, market value, book value, or EPS.

Book Value

is the net value of a company's assets minus its liabilities, as recorded on the balance sheet, often used in assessing a company's financial health.

Market Value

The ongoing price for buying or selling an asset or service in the market.