Suppose There Is a Decrease in the Short-Term Interest Rate

question 6

Multiple Choice

Suppose there is a decrease in the short-term interest rate.Give this reduction in the current short-term interest rate,which of the following will most likely occur?

• A)The long-term interest rate will increase.
• B)The long-term interest rate will remain the same.
• C)The long-term interest rate will decrease by more than the short-term rate.
• D)The long-term interest rate will decrease by the same amount as the short-term rate.
• E) The long-term interest rate will decrease, but by less than the short-term rate.

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Definitions:

Net Cash Flow

The amount of cash generated or used by a company in a given period, calculated as cash inflows minus cash outflows.

Capital Investment

Funds spent by a company to purchase, maintain, or improve physical assets such as property, industrial buildings, or equipment.

Quantitative Measures

Metrics or data points that can be quantified numerically to assess performance, trends, or changes over time.

Asset Purchases

Transactions involving the acquisition of physical or intangible assets that are expected to generate economic benefits for the business.