If the Real Rate of Return Is 5 Percent and the Inflation

question 141

Multiple Choice

If the real rate of return is 5 percent and the inflation rate is 2 percent, the nominal interest rate is:

• A) 7 percent.
• B) 3 percent.
• C) −3 percent.
• D) −7 percent.

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Definitions:

Credit Sales

Sales transactions where the buyer is allowed to pay the seller at a later date, typically extending credit to the customer.

Direct Method

A way to present the cash flow statement where actual cash flows from operating activities are disclosed, contrasting with the indirect method.

Statement of Cash Flows

A financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents.

Depreciation Expense

The allocated cost of a tangible asset over its useful life, reflecting wear and tear, obsolescence, or decline in value.