Assume That for the Entire Business Sector of a Private

question 205

Multiple Choice

Assume that for the entire business sector of a private closed economy, there are $0 worth of investment projects that will yield an expected rate of return of 25 percent or more. But there are $15
Worth of investments that will yield an expected rate of return of 20-25 percent, another $15 with an
Expected rate of return of 15-20 percent, and an additional $15 of investment projects in each
Successive rate of return range down to and including the 0-5 percent range. If the real interest rate is
15 percent, what amount of investment will be undertaken?

• A) $15
• B) $30
• C) $45
• D) $60

Understand the relationship between a firm's operating leverage, business risk, and capital structure.

Recognize the role of market conditions, such as recessions, on firms with different levels of leverage.

Understand the nature and function of fiat money, including Federal Reserve notes.

Understand the concept of money supply, including distinctions between M1 and M2.

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Definitions:

Geometric Average

A method of calculating the average rate of return of a set of values by multiplying them together and taking the nth root, where n is the number of values.

Efficient Capital Market

A market in which securities' prices fully reflect all available information, making it impossible to consistently achieve higher returns without taking additional risks.

Income Component

Income Component pertains to the portion of a financial product's return that is generated from the payment of interest or dividends.

Capital Gain

The profit earned from the sale of an asset like stocks, bonds, or real estate, which exceeds its purchase price.