The ABC Corporation Earned a Real Rate Return of 4

question 384

Multiple Choice

The ABC Corporation earned a real rate return of 4.5 percent on an investment. In the economy, the nominal rate of interest was 6 percent and the rate of inflation was 3 percent. We can conclude that

• A) the investment was unprofitable.
• B) the investment was profitable.
• C) the real rate of interest was 9 percent.
• D) the real rate of interest was 1.5 percent.

---

Definitions:

Stock Call Option

A financial contract that gives the buyer the right, but not the obligation, to buy a stock at a specified price within a certain period.

Call Premium

The amount by which the price of a callable bond exceeds its par (or nominal) value or the amount paid for an option above its intrinsic value.

Time Spread

An options or futures strategy where a trader simultaneously buys and sells the same financial instrument with different expiration dates.

Exercise Price

The specified price at which the holder of an option can buy or sell the underlying asset.