Which of the Following Is TRUE Regarding the Real Interest

question 13

Multiple Choice

Which of the following is TRUE regarding the real interest rate?
I. The real interest rate is the opportunity cost of borrowed funds.
II. The real interest rate equals the nominal interest rate adjusted for inflation.

• A) I
• B) II
• C) both I and II
• D) neither I nor II

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Definitions:

Pure Discount

A financial instrument, such as a zero-coupon bond, that is sold at a discount and pays no interest, only returning the face value at maturity.

Interest-Only

A debt repayment strategy where the borrower pays only the interest on the principal balance, with the principal balance unchanged.

Pure Discount Loan

A loan where the borrower receives a sum of money upfront and repays a higher amount at the end of the loan period, effectively paying interest by the difference.

Lump Sum Payment

An isolated financial disbursement occurring once, instead of being divided into multiple payments over a duration.