« previous next »

Author Question: Use the concept of present value to explain the inverse relationship between the interest rate and ... (Read 302 times)

jilianpiloj

  • Hero Member
  • *****
  • Posts: 521
on: Jun 29, 2018
Use the concept of present value to explain the inverse relationship between the interest rate and the amount of investment a firm undertakes.
 
  What will be an ideal response?

Question 2

If, at the current exchange rate between the dollar and the South African rand of 6.92 rand per dollar, the rand is undervalued, how do you expect demand and supply in the foreign exchange markets to respond?
 
  A) The supply of the dollar will rise, while the demand for the rand will fall.
  B) The supply of the dollar will rise, while the demand for the rand will rise.
  C) The demand for the dollar will rise, while the supply of the rand will fall.
  D) The demand for the dollar will fall, while the supply of the rand will rise.


nathang24

  • Sr. Member
  • ****
  • Posts: 314
Reply #1 on: Jun 29, 2018
Answer to Question 1

As the interest rate falls, the present value of the income stream from an investment rises. Firms should undertake an investment project only if the present value of the income stream is higher than the full cost of the investment. Thus, the lower the interest rate, the greater the likelihood that this will be true. As the interest rate falls, projects that were not previously profitable will become profitable, and the firm's level of investment will rise.

Answer to Question 2

B


Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
« previous next »
 

Did you know?

When taking monoamine oxidase inhibitors, people should avoid a variety of foods, which include alcoholic beverages, bean curd, broad (fava) bean pods, cheese, fish, ginseng, protein extracts, meat, sauerkraut, shrimp paste, soups, and yeast.

Did you know?

The Centers for Disease Control and Prevention (CDC) was originally known as the Communicable Disease Center, which was formed to fight malaria. It was originally headquartered in Atlanta, Georgia, since the Southern states faced the worst threat from malaria.

Did you know?

Limit intake of red meat and dairy products made with whole milk. Choose skim milk, low-fat or fat-free dairy products. Limit fried food. Use healthy oils when cooking.

Did you know?

Liver spots have nothing whatsoever to do with the liver. They are a type of freckles commonly seen in older adults who have been out in the sun without sufficient sunscreen.

Did you know?

Prostaglandins were first isolated from human semen in Sweden in the 1930s. They were so named because the researcher thought that they came from the prostate gland. In fact, prostaglandins exist and are synthesized in almost every cell of the body.

Rate enhancement by entropy reduction Rate enhancement by entropy reduction
The relationship between pH, pKa, and the dissociation of an acid The relationship between pH, pKa, and the dissociation of an acid
Using concept maps as a learning strategy Using concept maps as a learning strategy
The continents were not always in their present positions. The position of the continents is importa The continents were not always in their present positions. The position of the continents is importa
Rate of Residential Change, Past Year, in the United States Rate of Residential Change, Past Year, in the United States
For each function f(x) = 6x^2 - 4, estimate the instantaneous rate of change for the given ... For each function f(x) = 6x^2 - 4, estimate the instantaneous rate of change for the given ...
Video: Mendel's pea plant, Pisum sativum experimental

For a complete list of videos, visit our video library