We Can Think About the Interest Rate as the "Price

question 48

Multiple Choice

We can think about the interest rate as the "price" of capital because

• A) the interest rate determines the MRP of the capital, which determines its price.
• B) the interest rate represents the value the firm avoids paying to lenders by purchasing the capital instead.
• C) this is the amount the firm earns by purchasing the capital.
• D) firms use financial capital to purchase physical capital and the interest rate is the "price" of financial capital.
• E) the interest rate determines the equilibrium level of investment demand.

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Definitions:

Credit Sale

A transaction where goods or services are provided to a customer with the agreement that payment will be made at a later date.

Other Comprehensive Income

A component of shareholders' equity that includes income and expenses not recognized in net income, such as unrealized gains and losses on investments.

Unrealized Gains

Increases in the value of an asset that have not been sold, hence not yet converting the gain into cash.

Available-For-Sale Securities

Financial assets that are purchased with the intention of selling before their maturity date, not held for long-term investment.