Which of the Following Represents the Equation That Would Be

question 40

Multiple Choice

Which of the following represents the equation that would be used to determine the yield to maturity of a three-year fixed payment loan of $1,400 which has payments of $500 per year?

• A) $1,400 = $500/(1 + i) + $500/(1 + i)² + $500/(1 + i)³
• B) $1,400 = $500/(1 + i)³
• C) i = (1,400-500)/1,400
• D) $1,400 = $500/(1 + i) + $500/(1 + i)² + $500(1 + i)³ + 1,400/(1 + i)³

---

Definitions:

Utility Function

A mathematical representation in economics that captures the level of satisfaction or utility that consumers derive from consuming goods and services.

Desert Island

A secluded and uninhabited island, often used in scenarios and thought experiments in economics and ethics to explore human behavior in isolation.

Competitive Equilibrium

A market situation where supply equates demand, leaving no incentive for price changes, assuming all agents are price-takers.

Perfect Substitutes

Items that can replace each other without affecting the consumer's satisfaction negatively.