Question

The 4 most fundamental factors that affect the cost of money are

(1) production opportunities, (2) time preferences for consumption, (3) risk, and (4) opportunity cost.

a. True b. False

Answer 1

A. True

Production opportunity refers a it's beneficiaitl part of money. It's turn like cost into benefit or gain. It's an investment opportunity which is available for investor. It's based on business profitability.

Time preference : time references refers as current consumption over the future consumption or vice versa , it's depends on investors views. If investor want to save money for future , investors decide to accept the lower return for future consumption or if investor need higher consumption they accept the higher rate of return. So that time preference affect the cost of money.

Risk : risk refers as chances of loss. In a risk there is possibility of negative return, there is chances of very less investment producing higher return.

Opportunity cost: it's value of a benefit lost or sacrificed to other chosen or something else. Investors always has options to where to invest and reject the beneficial alternative for something else or other alternatives for higher the returns.