Describe or Define Any Four Important Attributes for Screening Models

question 24

Essay

Describe or define any four important attributes for screening models used to evaluate projects.

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Definitions:

Nominal Interest Rate

indicates the percentage increase in money that the borrower pays the lender, not taking into account the eroding effects of inflation on the real value of the money.

Inflation Rate

The percentage rate at which the general level of prices for goods and services is rising, eroding purchasing power over time.

Real Interest Rate

The rate of interest an investor expects to receive after allowing for inflation, reflecting the true cost of borrowing and the true yield on investments.

Equilibrium Interest Rate

The interest rate at which the demand for funds (borrowing) equates with the supply of funds (savings) in the financial market.