Which Statement Best Defines "Indexation

question 48

Multiple Choice

Which statement best defines "indexation"?

• A) It is a process of adjusting the nominal interest rate so that it is equal to the real interest rate.
• B) It is the use of a law or contract to automatically correct a dollar amount for the effects of inflation.
• C) It is the use of a price index to deflate dollar values.
• D) It is an adjustment made by Statistics Canada to the CPI so that the index is in line with the GDP deflator.

---

Definitions:

Effective Rate

The actual interest rate on a loan or investment, taking into account the compounding of interest, as opposed to the nominal rate.

Ordinary Annuity

Homogeneous financial installments disbursed at the cessation of individual periods across a confirmed timeline.

Nominal Interest

The interest rate stated on a loan or investment agreement before any adjustments for compounding or inflation.

Effective Rate

Another term for the effective interest rate, emphasizing its real cost or yield accounting for compounding and other factors.