Which of the Following Statements Is Correct

question 38

Multiple Choice

Which of the following statements is correct?

• A) Interest would not exist in a nonmonetary economy.
• B) The present value of a future dollar payment is directly related to the interest rate.
• C) The present value of a fixed dollar payment to be received in the future will decline as the length of the time before the payment will be received increases.
• D) During an extended inflationary period, the money (or nominal) interest rate will usually be lower than the real rate of interest.

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Definitions:

Cash Balance

The amount of cash a company has on hand at any given time, which includes currency, coins, and balances in checking and savings accounts.

Market Rate of Return

The average return that investors expect to earn from a particular investment, based on historical or anticipated performance.

Trading Costs

Trading costs are the expenses incurred in buying and selling financial instruments, including commissions, spreads, and slippage.

Lockbox System

A service provided by banks to companies for the collection of payments from customers, where the payments are sent directly to a post office box to expedite processing.