Suppose You Have $1000 Today and the Risk-Free Rate of Interest

question 39

Multiple Choice

Suppose you have $1000 today and the risk-free rate of interest (rf) is 3.5%.The equivalent value in one year is closest to:

• A)$965.00.
• B)$966.18.
• C)$1000.00.
• D)$1035.00.

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Definitions:

Foreign-Currency Exchange

The marketplace where currencies are traded and their exchange rates are determined.

Net Capital Outflow

The distinction in investment behaviors where local residents invest in foreign properties versus foreigners investing in local properties.

Open-Economy Macroeconomic Model

A model that analyzes an economy that engages in international exchange of goods, services, and capital.

Loanable Funds

The market where savers supply funds for loans to borrowers, typically reflected by interest rates.