Which of the Following Is the Most Likely Response to an Increase

question 25

Multiple Choice

Which of the following is the most likely response to an increase in the U.S.real interest rate?

• A)a London bank purchases a U.S.bond instead of a Japanese bond it had considered purchasing
• B)U.S.firms decide to buy more capital goods
• C)a U.S.citizen decides to put less money in his savings account than he had planned.
• D)All of the above are consistent.

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Definitions:

Volatility

Volatility is a statistical measure of the dispersion of returns for a given security or market index, indicating the degree of variation from the average over a certain period.

CAPM

The Capital Asset Pricing Model is a formula used to determine the expected return on an investment, factoring in its risk compared to the market.

Required Return

The smallest yearly percentage gain from an investment necessary to entice people or corporations to invest in a certain security or endeavor.

Risk Aversion

The tendency of investors to prefer lower risk or safer investments to avoid potential losses.