If Both the Real Interest Rate and the Nominal Interest

question 98

Multiple Choice

If both the real interest rate and the nominal interest rate are 3 percent, then the

• A)inflation premium is zero.
• B)real GDP must exceed the nominal GDP.
• C)nominal GDP must exceed the real GDP.
• D)inflation premium also is 3 percent.

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Definitions:

Required Rate of Return

The minimum percentage return an investor expects or requires from an investment to compensate for its risk.

Expected Cash Flows

Forecasted cash receipts and payments over a specified period, often used for investment appraisal.

Rate of Return

The profit or deficit experienced from an investment during a set timeframe, represented as a percent growth from the initial investment value.

Capital Budgeting

The process of planning and managing a firm's long-term investments in projects and assets, considering their potential returns and risks.