Business, 12.10.2021 02:10 jvanegas6797

Four fundamental factors affect the cost of money: 1. The return that borrowers expect to earn on their investments
2. The preference of savers to spend their income in the current period rather than delay their consumption until some future period.
3. The risks associated with the investment
4. Expected inflation

Consider the following statements that address these factors, and indicate if you think each statement is true or false.

a. On average and everything else held constant, consumers prefer deferred consumption spending to immediate spending. On average and everything else held constant, an investment that can provide a 4% return should attract more investment capital from savers/investors than an otherwise identical investment that can generate a 12% return.
b. An investment that can provide a 10% return should attract more investment capital than an otherwise identical investment that can only provide a 6% return.
c. On average and everything else held constant, 30-year U. S. Treasury bonds should expect to exhibit a smaller maturity premium than a 1-year U. S. Treasury bill.
d. All things being equal, savers and investors expect to receive some amount of maturity premium as compensation for their deferred consumption.

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Four fundamental factors affect the cost of money: 1. The return that borrowers expect to earn on...

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