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You Want to Invest in a Riskless Project in Sweden

question 20

Multiple Choice

You want to invest in a riskless project in Sweden. The project has an initial cost of SKr2.1 million and is expected to produce cash inflows of SKr810,000 a year for 3 years. The project will be worthless after the first 3 years. The expected inflation rate in Sweden is 2 percent while it is 5 percent in the U.S. A risk-free security is paying 6 percent in the U.S. The current spot rate is $1 = SKr7.55. What is the net present value of this project in Swedish krona using the foreign currency approach? Assume that the international Fisher effect applies.

Understand the determinants and implications of land value and supply.

Compare different theories of profit, focusing on risk-bearing and innovation.

Explain the role of supply and demand in determining rent and interest rates.

Recognize the impact of innovation on profits and the factors influencing this.

Definitions:

Generalisation

The act or process of forming conclusions based on broad patterns, observations, or experiences that apply beyond specific instances.

Contact Hypothesis

A theory suggesting that under certain conditions, interpersonal contact is one of the most effective ways to reduce prejudice between majority and minority group members.

Social Identity Theory

A psychological theory that posits individuals define themselves by their group membership and seek to maintain positive self-esteem through their group affiliations.

Frustration-Aggression Hypothesis

is a theory suggesting that frustration leads to aggressive behavior, as frustration creates an impetus for aggression.