The rental price of capital is determined by the
A)forces of supply and demand in capital markets.
B)amount of equity that is generated in equity markets.
C)amount of bond financing used by profit-maximizing firms.
D)amount of dividends paid out to stockholders by profit-maximizing firms.

Question

Quizplus · Accepted Answer

The rental price of capital, or the interest rate, is determined by the forces of supply and demand in capital markets. This is because the interest rate is essentially the cost of borrowing capital, and the amount that lenders are willing to lend and borrowers are willing to borrow is influenced by market conditions such as inflation, interest rates set by central banks, and overall economic conditions. Equity markets, bond financing, and dividends paid out to stockholders may have some impact on the cost and availability of capital, but they are not the primary determinants of the rental price of capital.

The Rental Price of Capital Is Determined by the