Suppose the Nominal Annual Interest Rate on a Two Year

question 45

Multiple Choice

Suppose the nominal annual interest rate on a two year loan is 16 percent and lenders expect inflation to be 10 percent in each of the two years.The annual real rate of interest is:

• A)12 percent.
• B)16 percent.
• C)4 percent.
• D)6 percent.

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Definitions:

P-value

A statistical measure that helps to determine the significance of results, indicating the probability of observing the results given that the null hypothesis is true.

Null Hypothesis

Null hypothesis refers to a statement used in statistics that suggests no statistical significance exists in a set of given observations.

Alternative Hypothesis

The alternative hypothesis is a statement in hypothesis testing that proposes a specific relationship between variables, contrasting the null hypothesis.

One-sided Test

A hypothesis test in which the region of rejection is on only one side of the sampling distribution, assessing either a lower or upper tail.