Interest Rate Risk and the Time to Maturity Have a Relationship

question 186

Multiple Choice

Interest rate risk and the time to maturity have a relationship that is best characterized as ________.

• A) constant
• B) varying
• C) direct
• D) inverse

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Definitions:

Interest-Rate Cost-of-Funds Curve

A graphical representation showing the relationship between the interest rates on loans and the total amount of funds loaned by banks.

MB = MC Decision Framework

A decision-making framework where optimal resource allocation occurs when marginal benefits (MB) equal marginal costs (MC).

Marginal Cost Element

An increase in total cost that results from producing one additional unit of a good or service.

Entrepreneurs

Individuals who create, organize, and operate businesses, taking on financial risks in the hope of profit.