Other Things Being Equal, an Exogenous Increase in the Price

question 39

Multiple Choice

Other things being equal, an exogenous increase in the price level causes the aggregate wealth of holders and issuers of private- sector bonds to

• A)rise in nominal terms, but fall in real terms.
• B)not change since the changes in the wealth of bondholders and bond issuers offset each other.
• C)decrease.
• D)either increase or decrease depending on other factors.
• E)increase.

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Definitions:

Discount Rate

The rate applied in DCF assessment to compute the present worth of imminent cash flows.

Internal Rate

Short for Internal Rate of Return (IRR), a financial metric used to estimate the profitability of potential investments by calculating the rate of return at which net present value of all cash flows (both positive and negative) from a project equals zero.

Profitability Index

A capital budgeting tool that measures the ratio of the present value of future cash flows from an investment to the investment's initial cost.

Mutually Exclusive

Situations or events that cannot both occur at the same time.