You Want to Earn a Real Rate of Return of 3.75

question 25

Multiple Choice

You want to earn a real rate of return of 3.75% at a time when the inflation rate is 2.33%. What is the approximate nominal rate that you must earn?

• A)5.78%
• B)5.96%
• C)6.08%
• D)6.14%
• E)6.28%

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Definitions:

Straight-Line Depreciation

A method of calculating the depreciation of an asset where the expense is evenly allocated over its useful life.

Salvage Value

The estimated resale value of an asset at the end of its useful life.

Cash Transaction

A financial exchange involving the immediate payment of cash for the purchase of goods or services.

Accumulated Depreciation

The cumulative sum of depreciation expense allocated for a physical asset from the time it was first used.