If a Person Earns an 8 Percent Nominal Rate of Interest

question 39

Multiple Choice

If a person earns an 8 percent nominal rate of interest on his savings account in a year when inflation is 9 percent, the person's real rate of interest is

• A)-1 percent.
• B)1 percent.
• C)8 percent.
• D)9 percent.

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Definitions:

Unrealized Loss

A reduction in value experienced by retaining an asset whose price has fallen, but has not been liquidated yet.

Net Income

The total earnings of a company after subtracting all expenses and taxes from total revenue.

Stockholders' Equity

The residual interest in the assets of the corporation after deducting its liabilities, representing ownership interest.

Common Stock

Represents ownership shares in a corporation, giving holders voting rights and a share in the company's profits through dividends.