In the Textbook Model, Wealth Is Held in Two Forms

question 102

Multiple Choice

In the textbook model, wealth is held in two forms: money and in bond funds. Which of the following statements are true?
I. Money and bond funds earn the same interest rates in a well functioning money market.
II. Money is a more liquid asset compared to bond funds.
III. Bond funds are interest earning assets while money generally is not.
IV. The difference between the interest rates paid on money deposits and the interest return available from bonds is the cost of holding money.

• A) I, II, and IV
• B) I and IV
• C) II, III, and IV
• D) III and IV

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Definitions:

Depreciation Expense

An accounting method allocating the cost of a tangible asset over its useful life, reflecting the decrease in value of the asset over time due to wear and tear, usage, or obsolescence.

Translated

Converted from one language to another or, in financial terms, adjusted from one currency into another using the current exchange rate.

Remeasured

The process of adjusting the book value of a foreign subsidiary’s financial statements to reflect current exchange rates or the fair value of assets and liabilities.

Straight-Line Method

A method of calculating depreciation by evenly spreading the cost of an asset over its useful life.