The Rate of Interest Is an Important Determinant of Investment

question 3

Multiple Choice

The rate of interest is an important determinant of investment spending,even if a firm does not need to borrow funds.Why is this?

• A)Because the lower the rate of interest,the higher will be the opportunity cost of investment.
• B)Because instead of investing,the firm always has the choice of putting its funds in a savings account which will pay a return.
• C)Because investment is usually more profitable than saving.
• D)Because the higher the rate of interest,the lower inflation rate.

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Definitions:

Cumulative Net Profit

The total net profit of an entity over a period, accumulating all the net profits and losses from each period within the timeframe.

Fourth Year

Usually refers to the final year of a four-year educational program, such as a high school or university degree.

Probability

The likelihood of a specific event or outcome occurring, expressed on a scale from 0 (impossible) to 1 (certain).

Cumulative Profit

Cumulative profit is the total sum of profit earned over a period of time.