What is considered to be the best measure of the risk-free interest rate?
A. The rate of return on a corporate bond index fund
B. The rate of return on a corporate stock index fund
C. The rate of return on the Standard and Poor's 500
D. The rate of return on short-term U.S. government bonds
D. The rate of return on short-term U.S. government bonds
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A star basketball player signs a contract that newspaper reports indicate is worth $10 million. The player receives $2 million upon signing, and $2 million every year for four years. The contract is worth
A) less than $10 million since the present value of $2 million received one or more years from now is less than $2 million. B) more than $10 million since the present value of $2 million received one or more years from now is more than $2 million. C) $10 million as reported in the press. D) some amount around $10 million. To determine whether it is more or less than $10 million we need to know whether the interest the player can earn is more or less than the market rate of interest.
Which of the following will most likely have the greatest effect on an individual's consumption function?
a. winning a small amount in the lottery b. a one-time tuition grant c. a week of high overtime pay d. an inheritance paying a modest annual dividend