When the Costs of an Investment Come Before That Investment's

question 24

Multiple Choice

When the costs of an investment come before that investment's benefits, what will be the effect of a rise in interest rates on the attractiveness of that investment to potential investors?

• A) It will make it more attractive, since it will increase the investment's net present value (NPV).
• B) It will make it less attractive, since it will increase the investment's net present value (NPV).
• C) It will make it more attractive, since it will decrease the investment's net present value (NPV).
• D) It will make it less attractive, since it will decrease the investment's net present value (NPV).

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Definitions:

Pension Expense

The cost recognized by an employer for maintaining a pension plan for its employees over a period.

Actual Return

The real gain or loss achieved on an investment over a specific period, including interest, dividends, and capital gains.

Expected Return

The anticipated amount of profit or loss one expects from an investment over a specified period, considering all potential outcomes.

Service Cost

The portion of the cost of a pension or other post-employment benefit plan attributed to services rendered by employees in the current period.