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:

Straight-Line Depreciation

A method of calculating the depreciation of an asset where its cost is evenly spread across its useful life.

Initial Investments

The initial amount of money spent to start a project, purchase assets, or establish a business.

After-Tax Discount Rate

The rate of return after taxes have been calculated, used in evaluating the profitability of investment opportunities.

Income Tax Rate

The rate at which income is taxed for a person or a company.