Assume There Are No Prospective Investment Projects (I) That Will

question 199

Multiple Choice

Assume there are no prospective investment projects (I) that will yield an expected rate of return (r) of 25 percent or more, but there are $5 billion of investment opportunities with an expected rate of return between 20 and 25 percent, an additional $5 billion between 15 and 20 percent, and so on.If the real interest rate is 15 percent in this economy, the aggregate amount of investment will be

• A)$25 billion.
• B)$20 billion.
• C)$15 billion.
• D)$10 billion.

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Definitions:

Spot Price

The current market price at which an asset, like a commodity, currency, or security, can be bought or sold for immediate delivery.

Bushel

A unit of volume that is used in the United States for trading and pricing agricultural commodities like corn, wheat, and soybeans.

S&P 500 Index

A stock market index that measures the stock performance of 500 of the largest companies listed on stock exchanges in the United States.

Arbitrage Profit

Earnings realized from buying and selling the same asset in different markets to take advantage of differing prices for the same asset.