If the Nominal Interest Rate Is 5% and Inflation Is

question 141

Multiple Choice

If the nominal interest rate is 5% and inflation is 3%, the real interest rate is:

• A)0%.
• B)2%
• C)8%.
• D)15%.

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Definitions:

Return

The income generated from an investment, expressed as a percentage of the original investment cost.

Discounted Payback

A payback period calculation that takes into account the time value of money by discounting each of the cash flows from the project at a particular rate before it sums them to determine the break-even point.

Payback Period

The time required for the return on an investment to "pay back" the sum of the original investment, commonly used as a measure of investment risk.

Profile

A description or analysis of the characteristics, qualities, or activities of a person, organization, or thing.