3. Cost of money Four fundamental factors affect the cost of money: 1. The return that borrowers expect to cam on their investments 2. The preference of savers to spend their income in the current period rather than delay their consumption until some future period 3. The risks associated with the investment 4. Expected inflation Consider the following statements that address these factors, and indicate if you think each statement is true or false. Statement True False A risk-free asset is one characterized by guaranteed returns, whereas the cash flows of a risky asset may be greater or less than the expected or promised returns For the average rational investor or saver, there is an indirect, or inverse, relationship between the amount of risk exhibited by a security and the risk premium that would be required by the investor or saver, All things being equal, savers and investors expect to receive some amount of matunty premium as compensation for their deferred consumption All else being equal, the more highly that savers and investors prefer immediate spending to deferred consumption, the lower the compensation that savers and investors will require to induce them to make an investment that will necessitate postponed spending On average and everything else held constant, an investment that can provide a 4% return should attract more investment capital from savers/investors than an otherwise identical investment that can generate a 12% return