The Real Rate of Interest Is 3 Percent and Inflation

question 72

Multiple Choice

The real rate of interest is 3 percent and inflation is 4 percent. What is the nominal rate of interest?

• A)3.00 percent
• B)1.00 percent
• C)7.12 percent
• D)-1.00 percent

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Definitions:

Perpetuity

A type of annuity that pays a constant amount of money indefinitely, without a maturity date.

Semi-annual Scholarships

Scholarships awarded twice a year, often to support the educational expenses of students.

Compounded Annually

Pertains to the calculation of interest on both the initial principal and the accumulated interest from previous periods, applied once per year.

Perpetuity

A financial instrument that pays a constant stream of interest payments indefinitely.