Let the Real Rate of Interest Equal 5 Percent, Set

question 41

Multiple Choice

Let the real rate of interest equal 5 percent, set the rate of depreciation equal to 10 percent, and normalize the price of a piece of capital at $10,000. In this case, the rental price of capital would equal

• A) $500.
• B) $1,000.
• C) $1,500.
• D) $10,000.
• E) $666.67.

---

Definitions:

Capitalized Interest

Interest expenditures included in the cost of a self-constructed asset

Construction Loans

Short-term loans provided to finance the building or renovation of a property, typically converted into a long-term loan after the construction is completed.

Labor and Material

Refers to the total cost of the work force (labor) and the materials used in the production of goods or the provision of services.

Transportation Costs

Expenses incurred in moving goods or materials from one location to another, including shipping fees, freight, and logistics services.