Given a Choice Between 5-Year and 1-Year Instruments Most People

question 3

Multiple Choice

Given a choice between 5-year and 1-year instruments most people would choose 5-year instruments when borrowing and 1-year instruments when lending. Which of the following is a theory consistent with this observation?

• A) Expectations theory
• B) Market segmentation theory
• C) Liquidity preference theory
• D) Maturity preference theory

Understand the role of salvage value and useful life in calculating depreciation.

Analyze the effect of depreciation on financial statements and tax obligations.

Evaluate the choice of depreciation method on the financial health and reporting of a business.

Apply knowledge to determine the book value of assets after a certain period of depreciation.

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Definitions:

Reciprocity

Reciprocity is a mutual exchange of privileges or interactions between two parties where each offers something in return.

Misrepresentation

The act of giving a false or misleading account of the nature of something, often to deceive or mislead.

Hire-Purchase Agreement

A contract where an item is leased for a period of time and the lessee has the option to purchase the item at the end of the agreement.

False Information

Incorrect or misleading data presented as facts.