During a Period of Unanticipated Inflation

question 72

Multiple Choice

During a period of unanticipated inflation,

• A)Debtors are better off and creditors are worse off.
• B)Debtors and creditors are both better off because of lower real interest rates.
• C)Individuals on fixed incomes are better off.
• D)All individuals are worse off because of the level of uncertainty.

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Definitions:

Crossover Rate

The crossover rate is the rate of return at which two projects have the same net present value (NPV), used in capital budgeting to compare the desirability of investments or projects.

Profitability Index

A financial tool used to evaluate the attractiveness of an investment by dividing the present value of future cash flows by the initial investment cost.

Rate Of Return

The gain or loss of an investment over a specified period, expressed as a percentage of the investment’s cost.

Required Return

The lowest profit anticipated by an investor from a specific asset or project investment.