Final answer:
The question asks to determine the factor by which blended finance can multiply each initial dollar from a sovereign lender, but does not provide enough information to give a specific answer. An example is given where a firm's investment behavior changes based on the effective rate of return.
Step-by-step explanation:
The question refers to the concept of blended finance, which is a strategy used to leverage private sector investment into developing countries by using public or philanthropic sources of capital. In the context of innovative finance, blended finance aims to multiply each initial dollar from a sovereign lender by a certain factor. While the exact multiplication factor can depend on the specific blended finance arrangement and the risk associated with the project, the provided information does not clearly specify this factor. However, based on the question's structure, it seems like the student is expected to choose one of the options provided in their test or quiz question.
Regarding the example provided about the impact of an interest rate on investment, it illustrates the concept of capturing a return to society. If the interest rate is 9% and the firm can also capture the 5% return to society, it effectively reduces its cost of capital, making it appear as if the firm invests with a 4% rate of return, subsequently allowing for a greater investment. This example is likely to demonstrate how financial calculations can affect investment decisions.