Army SHARP Foundation - Module 2 > EXAM > D076 Module 4 Questions and Answers 100% Pass (All)

D076 Module 4 Questions and Answers 100% Pass

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3 different names used for interest rate ✔✔discount rate, required rate, cost 9f capital simple interest ✔✔interest paid on the principal alone compound interest ✔✔interest earned on bot... h the principal amount and any interest already earned opportunity cost ✔✔is the loss of potential gain Risk ✔✔is the possibility that the actual return will differ from the expected return Inflation ✔✔is the rate at which the average price level of goods and services increases Interest rate is also called ✔✔required rate of return when it refers to the compensation that an investor or lender will accept for investments such as stocks, bonds, or loans3 components of interest rate, or required rate ✔✔opportunity cost, risk, and inflation You just inherited $25,000 from a long-lost relative. You decide to put the money in a savings account for the time being. What would be considered an opportunity cost of putting the money in savings? ✔✔Buying a brand new car worth $25,000 Which component of an interest rate is an indicator of inflation and opportunity cost? ✔✔Riskfree rate What is the name for the interest rate expressed on an annual basis? ✔✔Compound interest Why is the required rate of return also known as the hurdle rate? ✔✔It is the minimum rate that a firm must surpass to accept a project. What is the inflation rate? ✔✔The rate at which the average price level of a basket of goods and services in an economy increases What does the risk-free rate indicate? ✔✔Inflation and opportunity costSuppose Sophia is considering a new stock investment for her retirement account. This stock has significant risk, but is quite popular in the market. Inflation for the next few years is expected to be 2-3% per year, and the current U.S. Treasury rates are about 2%. How should she use this information to decide what type of return she can expect from the stock? ✔✔Based on the inflation rate, she should expect this stock to provide a return higher than this for the associated risk [Show More]

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