Asked by Muhammad Haque on Jul 22, 2024
Verified
As interest rates fall, a firm would
A) have higher expected costs of investment.
B) have decreasing present value of expected earning.
C) be willing to pay less now to purchase the same number of future dollars.
D) be willing to pay more now to purchase the same number of future dollars.
Interest Rates
Charges applied on borrowed money or earned through deposits, varying according to the type, term, and risk associated with the financial product.
Present Value
The present value of a future sum of money or series of cash flows, discounted at a certain rate of return.
Expected Costs
The anticipated expenses associated with the production of goods or services or the undertaking of an activity, based on historical data, trends, and analysis.
- Grasp the dynamics between interest rates and how they affect the investment strategies of companies.
Verified Answer
AF
Andre FoulksJul 25, 2024
Final Answer :
D
Explanation :
When interest rates fall, the cost of borrowing money decreases, making it cheaper for firms to finance new investments. This means they would be willing to pay more now to secure future dollars, as the present value of those future dollars increases with lower interest rates.
Learning Objectives
- Grasp the dynamics between interest rates and how they affect the investment strategies of companies.