Suppose Reta Is Planning for Retirement in a Two-Period World

question 216

Multiple Choice

Suppose Reta is planning for retirement in a two-period world. In the first period Reta is young and earns $1 million, and in the second period Reta is old and retired and earns nothing. The interest rate is initially 10 percent, but then it falls to 7 percent. After the interest rate falls, the

• A)substitution effect will induce Reta to consume more when she is young.
• B)substitution effect will induce Reta to consume less when she is young.
• C)income effect will induce Reta to consume more when she is young.
• D)change in interest rates affects the substitution effect but not the income effect.

Learn the impact of bond issuance on company cash flows and ownership control.

Understand the principles of valuing bonds and the relevance of market rate versus contract rate.

Identify the characteristics and implications of installment notes, including interest computation and principal repayment.

Know the advantages and disadvantages of financing through bonds or long-term notes.

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Definitions:

External Hiring

The practice of filling job vacancies with candidates from outside the organization.

Employment Referral

A hiring method where current employees recommend prospective candidates for a job opening, sometimes rewarded through a referral program.

Recruiting

The process of identifying, attracting, interviewing, selecting, hiring, and onboarding employees.

Promote-From-Within Policy

An employment strategy where organizations prioritize the advancement of current employees for new or open positions instead of hiring externally.