Multiple choice

1. The line that connects the maximum that one can consume this year (now) and the maximum one can consume next year:  

a. Has a slope of (1 + r) 

b. Has a slope of -(1 + r) 

c. Has a slope of r 

d. Has a slope of 1/r 

2. Ms. Newcastle has $60,000 income this year and $40,000 next year. The market interest rate is 10% per year. Suppose Ms. Newcastle wishes to consume $62,000 next year. What will be her consumption this year?  

a. $60,000 

b. $40,000 

c. $70,000 

d. $19,000 

3. Mr. Smith has an income of $40,000 this year and $60,000 next year. He can invest in a project that costs $30,000 this year, which generates an income of $36,000 next year. The market interest rate is 10%. What will be his consumption next year, if Mr. Smith invests in the project and consumes $50,000 this year?  

a. $40,000 

b. $52,000 

c. $60,000 

d. None of the above 

4. The discount rate is used for calculating the NPV is:  

a. Determined by the financial markets 

b. Found by the government 

c. Found by the CEO 

d. None of the above