Choose the Statement That Best Characterizes an Economic Theory

question 62

Multiple Choice

Choose the statement that best characterizes an economic theory.An economic theory

• A)must be judged on its ability to explain and predict real- world phenomena.
• B)is only useful if its underlying assumptions are realistic.
• C)will predict more accurately if it contains a greater number of mathematical equations.
• D)will be useful only if all human behaviour is rational.
• E)will be useful as long as it is logically consistent.

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Definitions:

Cost of Debt

The effective rate that a company pays on its current debt, including bonds and loans.

Yield to Maturity

The total return anticipated on a bond if the bond is held until its maturity date, factoring in its current market price, par value, coupon interest rate, and time to maturity.

Par

The face value of a bond or other financial instrument, the amount to be repaid by the issuer at maturity.

Yield to Maturity

The total return anticipated on a bond if it is held until the date it matures, expressed as an annual rate.