If the Interest Rate Increases,the Opportunity Cost of Holding Money

question 163

Multiple Choice

If the interest rate increases,the opportunity cost of holding money __________,and the quantity demanded of money __________.

• A) does not change; does not change
• B) increases; also increases
• C) decreases; increases
• D) increases; decreases
• E) decreases; also decreases

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Definitions:

Reward-to-Volatility Ratio

A measure of the return on an investment relative to its risk, often used to compare the performance of investment strategies.

Efficient Frontier

A graphical representation of the set of optimal portfolios that provides the best possible expected return for a given level of risk.

Capital Allocation Line

A graph showing all possible combinations of risk-free assets and a portfolio of risky assets, illustrating optimal portfolios based on expected return and risk.

Expected Rate of Return

The expected rate of return is the anticipated percentage increase or decrease in an investment over a specified time period.