If a Checking Account Has an Interest Rate of 1

question 8

Multiple Choice

If a checking account has an interest rate of 1% and a Treasury bill has an interest rate of 3%, the opportunity cost of holding cash in a checking account is:

• A) zero.
• B) 0.02%.
• C) 1%.
• D) 2%.

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Definitions:

ROE

Return on Equity, a measure of financial performance calculated by dividing net income by shareholders' equity, indicating how well a company uses investments to generate earnings growth.

Ratio Analysis

A quantitative analysis method used to evaluate a company's financial health by calculating ratios from financial statements.

Operating Activities

Transactions and other events that affect the net income of a business, relating to its principal revenue-producing operations.

Statement of Cash Flows

A financial report that summarizes the amount of cash and cash equivalents entering and leaving a company.