VSB 2009 Exam 2 Questions & Answers 2024/2025
Production opportunities - ANSWERSThe investment opportunities in productive (cash generating) assets
Time Preferences for Consumption - ANSWERSThe preferences of consumers for current consumption as opposed to saving for future consumption
R...
Production opportunities - ANSWERSThe investment opportunities in productive (cash generating) assets
Time Preferences for Consumption - ANSWERSThe preferences of consumers for current consumption as
opposed to saving for future consumption
Risk - ANSWERSIn a financial market context, the chance that an investment will provide a low or
negative return
Inflation - ANSWERSThe amount by which prices increase over time
Real risk-free interest rate - ANSWERSThe rate of interest that would exist on default-free U.S. Treasury
securities if no inflation were expected
r*
nominal risk-free date - ANSWERSThe rate of interest on a security that is free of all risk
is proxied by the T-bill rate or the T-bond rate; includes an inflation premium
Inflation premium - ANSWERSA premium equal to expected inflation that investors add to the real risk-
free rate of return
Default Risk Premium - ANSWERSThe difference between the interest rate on a U.S. Treasury bond and a
corporate bond of equal maturity and marketability
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