Which of the Following Best Represents Time Preference

question 101

Multiple Choice

Which of the following best represents time preference?

• A) Sarah is spending $20,000 per year in tuition and other expenses to attend college with the hopes of earning a higher income in the future.
• B) Max saves $300 per month from his paychecks for retirement.
• C) Alex smokes a pack of cigarettes per day even though he knows that he may face poor health down the road because of his smoking habit.
• D) Thomas invests money in Apple today,which is subsequently used by Apple to fund additional investment purchases that will benefit future shareholders.

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Definitions:

Breakeven Interest Rate

The interest rate at which the cost of borrowing equals the income from an investment, resulting in no profit or loss.

Flotation Costs

Expenses incurred by a company in issuing new securities, including underwriting fees, legal fees, and registration fees, affecting the net proceeds from the offering.

Maturity Value

The amount that will be paid to the holder of a financial instrument at its maturity date.

Bought Deals

An arrangement in which an investment bank buys an entire new issue of securities from a company and resells it to investors.