A Ponzi scheme
A)is guaranteed a minimum income.
B)pays "returns" to savers out of capital paid in from new investments or new investors.
C)is guaranteed to fail eventually.
D)b and c.

Question

Quizplus · Accepted Answer

A Ponzi scheme pays returns to earlier investors out of the money put in by newer investors, rather than from actual profit. The scheme inevitably falls apart when it becomes difficult to attract new investors and pay off earlier investors' returns. Therefore, a Ponzi scheme is both guaranteed to fail eventually (option C) and pays returns out of capital paid in from new investments or new investors (option B). Option A is incorrect because there is no guarantee of income in a Ponzi scheme.

A Ponzi Scheme