Which of the Following Is True About the Interest Rate

question 78

Multiple Choice

Which of the following is true about the interest rate and saving?

• A)For a saver,the income and substitution effects of an increase in interest rate work in the same directions.
• B)For a borrower,the income and substitution effects of an increase in interest rate work in the same directions.
• C)For a saver,the income effect of an increase in the interest rate is negative,but the substitution effect is positive.
• D)For a borrower,the income and substitution effects of an increase in interest rate work in the opposite directions.

---

Definitions:

Beta

A measure of a stock's volatility in relation to the overall market; a beta greater than 1 indicates higher risk and potential return, while a beta less than 1 implies less risk and return.

Cost of Debt

The effective rate that a company pays on its current debt, including loans, bonds, and any other form of debt.

Cost of Equity

The theoretical earnings paid by a business to its equity holders as compensation for the risk they take by investing.

Preferred Stock

A class of ownership in a corporation that has a higher claim on its assets and earnings than common stock, often paying fixed dividends.