Jackson Has the Choice to Invest in City of Mitchell

question 103

Multiple Choice

Jackson has the choice to invest in city of Mitchell bonds or Sundial,Inc.corporate bonds that pay 10% interest.Jackson is a single taxpayer who earns $50,000 annually.Assume that the city of Mitchell bonds and the Sundial,Inc.bonds have similar risk.What interest rate would the city of Mitchell have to pay in order to make Jackson indifferent between investing in the city of Mitchell and the Sundial,Inc.bonds for year 2013?

• A)7.50%
• B)10.00%
• C)8.00%
• D)7.20%
• E)None of these

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Definitions:

Marginal Productivity

An economic principle describing the added output that results from the increase of one more unit of an input, holding all other inputs constant.

Consumer Good

A product that is purchased by end-users or consumers for personal use.

Resource Demand

The desire and ability of firms or individuals to acquire resources or inputs necessary for production, influenced by their price and productivity.

Demand Decrease

A reduction in the quantity of a product or service wanted by consumers at any given price level.