If a Firm Can Borrow or Lend at a 10

question 30

Multiple Choice

If a firm can borrow or lend at a 10 percent annual interest rate, it will

• A)buy all units of capital with a marginal rate of return above 10 percent
• B)buy all units of capital with an average rate of return above 10 percent
• C)buy all units of capital with a marginal rate of return below 10 percent
• D)buy all units of capital with an average rate of return below 10 percent
• E)select only the unit of capital with the highest marginal rate of return, assuming it is above 10 percent

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Definitions:

Savings And Loan Industry

A segment of the financial industry focused on accepting savings deposits and making mortgage and other loans to individuals and businesses.

Interest Rates

The amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets.

Interest Rate Swap

A financial derivative contract in which two parties agree to exchange one stream of interest payments for another, based on a specified principal amount.

Fixed Rate

An interest rate that remains constant over the life of a loan or investment, unaffected by market fluctuations.