Exercise 2

Carly wants to buy and operate an ice-cream truck but doesn't have the financial resources to start the

business. She borrows $20,000 from her friend Freddie, to whom she promises an interest rate of 7

percent, and gets another $30,000 from her friend Sam, to whom she promises a third of her profits.

What best describes this situation?

A bond tends to pay a high interest rate if it is

a. a short-term bond rather than a long-term bond.

b. a municipal bond exempt from federal taxation.

c. issued by the federal government rather than a corporation.

d. issued by a corporation of dubious credit quality.

Support your answer using example(s).

Discuss and evaluate the main advantage of mutual funds.

(10 marks)

(8 marks)

(7 marks)