Which Scenario Represents Time Inconsistency

question 16

Multiple Choice

Which scenario represents time inconsistency?

• A) A person prefers $80 today to $100 one year from now but prefers $100 in six years to $80 in five years.
• B) You prefer receiving $2 on January 1^st of this year to receiving $1 on January 2^nd of this year, and you prefer $2 on January 1^st of next year to $1 on January 2^nd of next year.
• C) A person prefers $100 in one year to $80 today but prefers $100 in six years to $80 in five years.
• D) You value $1 today more than $1 tomorrow.

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Definitions:

Gross Margin Percentage

A financial metric indicating the percentage of revenue that exceeds the cost of goods sold, demonstrating the efficiency of a company in managing its production costs relative to sales.

Income Statement

A financial document that shows a company's revenues and expenses over a specified period, illustrating how the net revenue of the company is transformed into net income.

Dividend Yield Ratio

A financial ratio that measures the amount of dividends an investor is expected to receive for each dollar invested in a company's stock, expressed as a percentage.

Market Price

The current price at which an asset or service can be bought or sold in the open market.