A Lower Interest Rate Makes More Investment Projects Feasible, Meaning

question 133

Multiple Choice

A lower interest rate makes more investment projects feasible, meaning that:

• A) there is a direct relationship between the rate of interest and the quantity of investment spending.
• B) there is an inverse relationship between the rate of interest and the quantity of investment spending.
• C) there is no relationship between the rate of interest and the quantity of investment spending.
• D) the demand curve for investment spending is horizontal.

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Definitions:

Levered Firm

A company that uses debt in addition to equity in its capital structure, often to finance operations and grow.

Unlevered Firm

A business that operates without any debt financing, using only equity for its operations and investments.

Rate of Return

The gain or loss on an investment over a specified period, expressed as a percentage of the investment's cost.

Homemade Leverage

The use of personal borrowing to adjust the overall level of financial leverage that an individual utilizes in their investments.