Daily quiz-24 (03/30): Print your name and ID in BLOCK letters.
Q1. Alyssa is opening a bicycle shop. Her expenditures to get the shop up and running – renting
a large commercial space in the mall, buying an inventory etc. – exceeds her current monthly
income. Alyssa is best described as a _____ (saver/borrower) and a (demander of funds/
supplier of funds) in financial markets. Choose words from the parenthesis to fill up the blanks.
Ans: borrower and a demander of funds
Q2. The State of California and General Electric Corporation both issue bonds to borrow from
the public to finance their expenditures. Which of the two do you think has a higher default risk?
Why?
Ans: Multiple approaches are possible. One answer could be that the State of California being a
state govt. has the power to raise taxes and pay off debts and hence has inherently a lower
default risk compared to General Electric which has no such powers.
Q3. Which bond will provide the holder with a higher interest rate – the bond issued by the
State of California or the one issued by General Electric Corporation?
Ans: The institution with the higher default risk must pay a higher interest rate on its bond to
compensate for its risk.