The Demand Curve for Funds Is Downward Sloping Because

question 196

Multiple Choice

The demand curve for funds is downward sloping because

• A)the value of the MRP in terms of today's money shrinks as the interest rate rises.
• B)future returns must be discounted more when the interest rate rises.
• C)as the interest rate rises, more and more investments become unprofitable.
• D)All of the above are correct.

---

Definitions:

Accounting Rate of Return

A financial metric used to assess the profitability of an investment, calculated as the average annual return over the investment's life divided by the initial investment cost.

Straight-Line Depreciation

An arrangement for apportioning the financial burden of a physical investment throughout its active life in equal yearly disbursements.

Accounting Rate of Return

A financial ratio used to measure the profitability of an investment, calculated as the average annual profit divided by the initial investment cost.

After-Tax Net Income

The amount of money a company earns in a given period after all taxes have been deducted from gross income.