Suppose Certain Providers of Finance Are to Be Compensated for Their

question 43

Multiple Choice

Suppose certain providers of finance are to be compensated for their rate of time preference by a discount rate of 3 per cent, at a time when inflation is anticipated to be 4 per cent. What overall return will they require on risk- free investments?

• A) 1%
• B) 1.1%
• C) 12%
• D) 7.1%

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Definitions:

Net Income

The residual earnings of a company following the subtraction of all costs and taxes from its revenue.

Costing Method

An accounting approach used to value inventory and determine the cost of goods sold, which can vary, such as FIFO (First-In, First-Out) or LIFO (Last-In, First-Out).

Ending Inventory

The value of goods available for sale at the end of an accounting period, calculated as the beginning inventory plus purchases minus the cost of goods sold.

Cost of Goods Sold

The direct costs tied to the production of the goods sold by a company, including materials and labor.