Consider the Following Diagram

question 22

Multiple Choice

Consider the following diagram:
In the diagram,if the optimal policy is chosen then shareholder 2,with the lower indifference curve,will optimise her consumption by:

• A)lending in the second period and borrowing in the first period.
• B)borrowing in the first period and repaying in the second period.
• C)lending in the first period and recieving in the second period.
• D)borrowing in the first period and recieving in the second period.

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Definitions:

Cost Of Capital

The essential profit ratio a company is expected to reach in its investing endeavors to keep its marketplace value and attract financial backers.

Securities

Financial instruments that represent an ownership position in a publicly-traded corporation (stock), a creditor relationship with a governmental body or a corporation (bond), or rights to ownership as represented by an option.

Risk Level

The degree of uncertainty and/or potential financial loss inherent in an investment decision.

Preferred Stock

A class of ownership in a corporation that has a higher claim on its assets and earnings than common stock, often with dividends that are paid out before those to common shareholders.