If the Inflation Rate Is 2

question 98

Multiple Choice

If the inflation rate is 2.5 percent and the nominal interest rate is 10 percent, then the real interest rate is

• A)7.5 percent.
• B)-2.5 percent.
• C)2.5 percent.
• D)-7.5 percent.
• E)12.5 percent.

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Definitions:

Retained Earnings

The portion of net profits not paid out as dividends but retained by the company to be reinvested in its core business or to pay debt.

Paid-In Capital

The amount of capital "paid in" by investors during common or preferred stock issuances, including the par value of the shares themselves plus any additional paid-in capital.

Treasury Stock

Stocks that the original issuing company has repurchased, decreasing the total number of shares available for trade in the public market.

Par Value

The nominal or face value of a bond, share of stock, or coupon as stated by the issuer, which does not necessarily reflect market value.