The Concept of Present Value Helps Explain Why

question 168

Multiple Choice

The concept of present value helps explain why

• A)investment decreases when the interest rate increases,and it also helps explain why the quantity of loanable funds demanded decreases when the interest rate increases.
• B)investment decreases when the interest rate increases,but it is of no help in explaining why the quantity of loanable funds demanded decreases when the interest rate increases.
• C)the quantity of loanable funds demanded decreases when the interest rate increases,but it is of no help in explaining why investment decreases when the interest rate increases.
• D)None of the above are correct;the concept of present value is of no help in explaining why either investment or the quantity of loanable funds demanded decreases when the interest rate increases.

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Definitions:

Reverse Stock Split

A corporate action in which a company reduces the number of its existing shares to increase the share price without changing the total market capitalization.

Market Value

The current trading price for a service or asset in the open market.

Book Value

The net value of a company's assets minus its liabilities, as recorded on the balance sheet, often compared to its market value to assess if it's under or overvalued.

Retained Earnings

The portion of a company's profit that is held back and not distributed to shareholders in order to reinvest in the business or pay off debt.