If the Real Value of Your Savings Decreases Over Time

question 11

Multiple Choice

If the real value of your savings decreases over time:

• A) the real rate of interest is positive.
• B) inflation is zero.
• C) the real rate of interest is negative.
• D) the real rate of interest is zero.

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Definitions:

Promised Yield

The return that a bond issuer agrees to pay to the bondholder until maturity, expressed as an annual percentage.

Coupon Rate

The annual interest rate paid by a bond issuer to the bondholder, usually expressed as a percentage of the bond's face value.

Duration

A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates, often expressed in years.

Perpetuities

A type of annuity that receives an infinite series of identical cash flows with no end.