A Change in the Expected Rate of Inflation from 3

question 187

Multiple Choice

A change in the expected rate of inflation from 3 percent to 5 percent will

• A)increase the real interest rate by 2 percentage points.
• B)decrease the real interest rate by 3 percentage points.
• C)increase the nominal interest rate by 2 percentage points.
• D)decrease the nominal interest rate by 2 percentage points.

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Definitions:

Payout Ratio

The proportion of earnings paid out as dividends to shareholders, often expressed as a percentage.

Dividend Policies

The policies and guidelines a company follows in deciding how much of its earnings it will pay out to shareholders as dividends.

Bird-In-The Hand

A theory suggesting that investors prefer dividends from a stock to potential capital gains because of the immediate certainty of receiving payouts.

Dividend Reinvestment Plans

Programs that allow shareholders to automatically reinvest their cash dividends into additional shares of the issuing company.