Consider the Following Timeline: If the Current Market Rate

question 52

Multiple Choice

Consider the following timeline: If the current market rate of interest is 8%, then the present value (PV) of this timeline as of year 0 is closest to ________.

• A) $502
• B) $653
• C) $600
• D) $1004

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Definitions:

Demand

The desire to purchase goods and services backed by the ability and willingness to pay, at a specified price.

Loanable Funds

A concept in economics that describes the market where borrowers and lenders meet to transact loans or bonds.

Nominal Interest Rate

The interest rate before adjustments for inflation; the rate quoted by financial institutions.

Real Interest Rate

The interest rate that has been adjusted to remove the effects of inflation, reflecting the real cost of funds to the borrower and the real yield to the lender.