If the Nominal Rate of Interest Is 10%, the Real

question 67

Multiple Choice

If the nominal rate of interest is 10%, the real rate of interest is 3%, the default premium is 3%, the liquidity premium is 0.5%, and the maturity premium is 1.5%, then the inflation premium must be ______.

• A) 2.0%
• B) 2.5%
• C) 3.0%
• D) 1.5%

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Definitions:

Pearson Correlation

A measure of the linear correlation between two variables X and Y, giving a value between -1 and 1.

Variance

A measure of variability that describes the spread of a data set by taking the average of the squared differences from the mean.

Degrees of Freedom

The count of distinct values or quantities that can be allocated to a statistical distribution.

Sample Size

The number of observations or data points that constitute a sample from a population.