The Net Present Value for a Project with a Relatively

question 36

Multiple Choice

The net present value for a project with a relatively long life is more sensitive to changes in the required rate of return than the net present value for a project with a relatively short life because:

• A)the internal rate of return is greater the longer the term of a project.
• B)interest is compounded over time.
• C)a change in the discount rate has a much greater impact on more distant cash flows.
• D)distant cash flows are more uncertain.

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Definitions:

Excess Reserves

The reserves that banks hold in excess of the required minimum, often held in the central bank, which can lend them out to generate interest.

New Loans

Any sums of borrowed money that have recently been provided by a lender to a borrower.

Reserve Requirement

The minimum amount of reserves a bank must hold against deposits, set by the central bank, influencing the money supply and banking stability. A rephrased definition since "Required Reserves" is a similar concept.

Open Market Purchase

An activity by a central bank to buy securities in the open market to increase the money supply and stimulate economic growth.