Let the real rate of interest equal 5 percent, set the rate of depreciation equal to 10 percent, and normalize the price of a piece of capital at $10,000. In this case, the rental price of capital would equal
A) $500.
B) $1,000.
C) $1,500.
D) $10,000.
E) $666.67.

Question

Quizplus · Accepted Answer

The rental price of capital is calculated by adding the real rate of interest to the rate of depreciation and then multiplying the sum by the price of the capital. Thus, (5% + 10%) * $10,000 = 15% * $10,000 = $1,500.

Let the Real Rate of Interest Equal 5 Percent, Set