If the Nominal Interest Rate Is 4 Percent and Expected

question 146

Multiple Choice

If the nominal interest rate is 4 percent and expected inflation rate is 1.6 percent, the real interest rate equals

• A)2.4 percent.
• B)5.6 percent.
• C)-2.4 percent.
• D)8 percent.
• E)none of the above

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Definitions:

Face Value

The nominal value printed on a security or financial instrument, representing its legal value.

Expected Interest Rate

The anticipation of the rate at which money will be charged for the use of money in future transactions, often guided by current economic conditions and monetary policy.

Algebraic Expression

An algebraic expression is a mathematical phrase that can contain ordinary numbers, variables (like x or y), and operators (like add, subtract, multiply, and divide).

Interest Rate

An annual percentage reflecting the amount of a loan that is applied as interest to the borrower, calculated on the total loan amount outstanding.