A Higher Interest Rate

question 61

Multiple Choice

A higher interest rate

• A)increases the motivation to delay consumption and, therefore, save.
• B)increases the motivation to delay consumption and, therefore, borrow.
• C)decreases the motivation to delay consumption and, therefore, save.
• D)decreases the motivation to delay consumption and, therefore, borrow.

---

Definitions:

Capital Asset Pricing Model

A model used to determine the theoretical rate of return of an asset, considering risk and the time value of money.

Cost of Equity

The return a firm theoretically pays to its equity investors, i.e., shareholders, to compensate for the risk they undertook by investing their capital.

WACC

Weighted Average Cost of Capital, a calculation that reflects the cost of a company to finance its assets through a mix of equity and debt.

Level of Risk

The level of risk and possible monetary loss associated with making an investment choice.