Describe the Difference Between the Purchase Price of Capital and the Rental

question 105

Essay

Describe the difference between the purchase price of capital and the rental price of capital. If you know the value of marginal product from the flow of capital services, how would you determine the market price for the capital stock?

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Definitions:

Interest Rates

The cost of borrowing money, typically expressed as a percentage of the amount loaned, paid to the lender at regular intervals for the use of their money.

Bond Prices

The market value of a bond, which can fluctuate based on interest rates, the bond’s credit quality, and other factors.

Opportunity Cost

Cost associated with opportunities forgone when a firm’s resources are not put to their best alternative use.

Projected Net Present Value

An estimation of the present value of an investment's future net cash flows minus the initial investment cost.