Freds Fish House is contemplating an investment of $50,000 in a new shrimp boat and deep fryers. Management of this company predicts a 6.3 percent annual return on this investment. The current market rate of interest is 5.6 percent. Freds Fish House will:
A. not invest since the cost is greater than the expected return.
B. does not invest since the cost is less than the expected return.
C. invest since the cost is less than the expected return.
D. invest since the cost is greater than the expected return.
At which of the market rates of interest below would Fred's Fish House be inclined to invest?
A. 3.5%.
B. 3%.
C. 2%.
D. at any of these interest rates listed.
Freds Fish House is contemplating an investment of $50,000 in a new shrimp boat and deep fryers. Management of this company predicts a 6.3 percent annual return on this investment. The current market rate of interest is 5.6 percent. Freds Fish House will:
A. not invest since the cost is greater than the expected return.
B. does not invest since the cost is less than the expected return.
C. invest since the cost is less than the expected return.
D. invest since the cost is greater than the expected return.
At which of the market rates of interest below would Fred's Fish House be inclined to invest?
A. 3.5%.
B. 3%.
C. 2%.
D. at any of these interest rates listed.
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QUESTION 16
Which of the following statements is true?
The administrative costs per dollar are greater for a large loan than a small loan. | ||
The risk on a long-term loan is likely to be less than on a short-term loan, ceteris paribus. | ||
a and b | ||
none of the above |
1 points
QUESTION 17
If the price for loanable funds is less than the return on capital, then firms will
borrow in the loanable funds market and invest in capital goods, and as this happens, the quantity of capital decreases and its return rises. | ||
borrow in the loanable funds market and invest in capital goods, and as this happens, the quantity of capital increases and its return falls. | ||
not borrow in the loanable funds market, and over time the capital stock will decrease and the return on capital will fall. | ||
not borrow in the loanable funds market, and over time the capital stock will decrease and the return on capital will rise. |
1 points
QUESTION 18
Economic rent is
the payment a renter pays his or her landlord. | ||
payment in excess of fixed costs. | ||
payment in excess of opportunity costs. | ||
the same as interest if we are discussing a capital good purchase. | ||
none of the above |
1 points
QUESTION 19
Suppose a bank makes a $1,000 loan to you at 5 percent interest when the expected and actual inflation rate are zero percent. Before you pay back the $1,000 principal and $50 interest, the inflation rate increases to 10 percent. Does anyone lose from this situation?
Nobody loses, because the terms were set before the inflation rate increased, and once the terms are set, inflation does not affect the situation. | ||
You lose, because the dollars that you have borrowed are worth more the higher the inflation rate. | ||
The banker loses, because you will be paying back the loan with dollars that are worth less than the dollars you borrowed. | ||
Both the banker and you lose, for the reasons in answers b and c. | ||
There is not enough information to answer the question. |
1 points
QUESTION 20
A change in the expected rate of inflation from 5 percent to 3 percent will
decrease the real interest rate by 2 percentage points. | ||
decrease the real interest rate by 3 percentage points. | ||
increase the nominal interest rate by 2 percentage points. | ||
decrease the nominal interest rate by 2 percentage points. |
Three students have each saved $1,000. Each has an investment opportunity in which he or she can invest up to $2,000. Here are the rates of return on the student's investment projects:
Student | Return |
---|---|
(Percent) | |
Yakov | 4 |
Charles | 7 |
Dina | 15 |
Assume borrowing and lending are prohibited, so each student uses only personal savings to finance his or her own investment project.
Complete the following table with how much each student will have a year later when the project pays its return.
Student | Money a Year Later |
---|---|
(Dollars) | |
Yakov | _________ |
Charles | _________ |
Dina | _________ |
Now suppose their school opens up a market for loanable funds in which students can borrow and lend among themselves at an interest rate or.
If a studentâs expected rate of return is greater than r, he or she would choose to (lend, borrow).
Suppose the interest rate is 6 percent.
Among these three students, the quantity of loanable funds supplied would be $______, and quantity demanded would be $______.
Now suppose the interest rate is 12 percent.
Among these three students, the quantity of loanable funds supplied would be $______, and quantity demanded would be $______.
At an interest rate of ______%, the loanable funds market among these three students would be in equilibrium. At this interest rate, (Charles, Yakov, Yakov and Charles, Charles and Dina, Dina) would want to borrow, and (Charles, Yakov, Yakov and Charles, Charles and Dina, Dina) want to lend.
Suppose the interest rate is at the equilibrium rate.
Complete the following table with how much each student will have a year later after the investment projects pay their return and loans have been repaid.
Student | Money a Year Later |
---|---|
(Dollars) | |
Yakov | _________ |
Charles | _________ |
Dina | _________ |
True or False: Only borrowers are made better off, and lenders are made worse off.