5:21 PM xa.yimg.com Pad 7 of 7 . The federal government can always avoid default

Question

5:21 PM xa.yimg.com Pad 7 of 7 . The federal government can always avoid default on its issues because of its unique right to: a. change Treasury bond yields to zero at its discretion b. print money. c. tax d. wage war. Which is an example of debt financing? a. ssuing stock to raise capital b. using the company's earnings to fund a project c. a leasing agreement d. issuing bonds to raise capital 54. 55. are traded in capital markets. a. b. c. d. Only stocks Only bonds Long-term bonds and stocks Only short-term bonds

Explanation / Answer

Question 53

Answer is option B. We consider government debt as risk free just because of the ability of government to print money. It is believed that in case if the government is about to default on its obligation, it can print money and pay it to the creditor to avoid default.

Question 54.

Answer is Option d. Option a and b are equity financing. Option a is equity financing by new stock issuance. Option b is equity financing through retained earnings. Option c is lease financing. Option d is debt financing, since bonds are debt obligations.

Question 55

Option c. Long term bonds and stocks are traded in capital market. Short term bonds or instruments are traded in Money market. These short term instruments are less than 1 year in maturity.

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