Which of the Following Statements About the Relationship Between Economic

question 38

Multiple Choice

Which of the following statements about the relationship between economic costs and accounting costs is true?

• A)Accounting costs are always less than or equal to economic costs.
• B)Accounting costs must always equal economic costs.
• C)Accounting costs are always greater than economic costs.
• D)Accounting costs are equal to or greater than economic costs.

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Definitions:

Real Risk-free Rate

The return on an investment with no risk of financial loss, adjusted for inflation.

Inflation Premium

The part of the nominal interest rate that represents compensation to the lender for the loss of purchasing power due to inflation.

Maturity Risk Premium

The additional return that investors demand for holding a bond until its maturity due to the potential for a change in the value over time.

Par Value

The face value of a bond or the stock value stated in the corporate charter, which is the minimum at which shares can be issued.