If the Nominal Interest Rate Is 5 Percent and the Inflation

question 363

Multiple Choice

If the nominal interest rate is 5 percent and the inflation rate is 2 percent, then what is the real interest rate?

• A)10 percent
• B)7 percent
• C)3 percent
• D)2.5 percent

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Definitions:

Dividends Received

Income received from shares in a company, typically distributed from profits to shareholders as decided by the board of directors.

Short-Term Investment

Assets that are expected to be converted into cash, sold, or consumed within one year or within the business's operating cycle.

Readily Marketable

Assets that can be sold quickly and with minimal impact on their price due to their appeal to a wide range of buyers.

Operating Cycle

The average time that it takes to purchase inventory, sell it on account, and then collect cash from customers.