If the Nominal Interest Rate Is 8 Percent and Expected

question 55

Multiple Choice

If the nominal interest rate is 8 percent and expected inflation is 2.5 percent,then what is the real interest rate?

• A)10.5 percent
• B)20 percent
• C)5.5 percent
• D)3.2 percent

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Definitions:

Prepaid Expenses

Expenses paid in advance for goods or services to be received in the future.

Depreciation Expense

The allocated cost of an asset over its useful life, representing wear and tear, decay, or decline in value.

Note Receivable

A financial asset representing a written promise to receive a certain amount of money at a future date.

Interest Earned

The amount of income earned from depositing funds or investing in interest-bearing financial instruments.