Which of the Following Best Explains Why Market Prices Are

question 16

Multiple Choice

Which of the following best explains why market prices are useful to a financial manager when performing a cost-benefit analysis?

• A) They can be used to determine how much an asset can be sold for.
• B) They can be used to convert different services and commodities into equivalent cash values which can be compared.
• C) They allow all commodities and services to be assigned a fixed and unchanging value.
• D) They can be evaluated to determine whether the market in which the manager exchanges goods and services offers true value.

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Definitions:

Long-Term U.S. Treasury Bonds

Bonds issued by the U.S. government with a maturity of typically 20 or 30 years, considered to be one of the safest long-term investments.

EAR

stands for Effective Annual Rate, a calculation that reflects the annual interest on an investment or loan, taking into account the effect of compounding interest.

APR

Annual Percentage Rate, which represents the annualized cost of credit including interest and other charges, helping consumers compare the cost of loans.

Continuous Compounding

Continuous compounding refers to the process of calculating interest on an investment, where the interest amount is reinvested and earns additional interest continuously, leading to exponential growth.