Which One of the Following Best Fits the Fisher Hypothesis

question 107

Multiple Choice

Which one of the following best fits the Fisher hypothesis?

• A)Long-term interest rates are based on current inflation rates.
• B)Nominal interest rates are inversely related to real rates.
• C)Interest rates tend to be higher than inflation rates.
• D)Nominal interest rates tend to be relatively constant over time.
• E)Future interest rates must be higher than current interest rates.

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Definitions:

Equivalent Payment

A term often used in finance to indicate a payment that has the same value or purchasing power as another, possibly under different conditions or payment schedules.

Consumer Price Index

A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care, used to assess price changes associated with the cost of living.

Compound Annual

A rate that calculates and expresses the cumulative effect of a series of gains or losses on an original amount of capital over a period of time, usually on an annual basis.

Real Rate of Return

The annual percentage return realized on an investment, which is adjusted for changes in prices due to inflation or other external effects.