Assume there are no investment projects that will produce an expected rate of return of 8 percent or more. There are, however, $2 billion worth of investment projects with an expected rate of return at 7 percent, an additional $2 billion for every drop of the interest rate by 1 percent. If the real interest rate is 3 percent in this economy, the cumulative amount of investment at the 3 percent or higher rate of return is:
A) $10 billion
B) $8 billion
C) $6 billion
D) $4 billion

Question

Quizplus · Accepted Answer

The cumulative amount of investment at a 3 percent or higher rate of return includes $2 billion at 7%, $2 billion at 6%, $2 billion at 5%, $2 billion at 4%, and $2 billion at 3%, totaling $10 billion.

Assume There Are No Investment Projects That Will Produce an Expected