If Investors Require a 7% Nominal Return and the Expected

question 68

Multiple Choice

If investors require a 7% nominal return and the expected inflation rate is 3%, what is the expected real return?

• A) 1.04%
• B) 3.00%
• C) 3.88%
• D) 4.00%
• E) 10.21%

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Definitions:

Current Assets

Assets that are expected to be converted into cash, sold, or consumed within the normal operating cycle of a business, typically one year.

Short-Term Debt

Debt obligations that are due for repayment within one year.

Operating Cycle

The average period of time between the acquisition of inventory by a business and the receipt of cash from sales of the inventory, encompassing both the purchase of inventory and the collection of receivables.

Interest Expense

The cost incurred by an entity for borrowed funds.