If the Nominal Interest Rate Is 2% and the Actual

question 9

Multiple Choice

If the nominal interest rate is 2% and the actual inflation rate is 5%, then the actual real rate of interest is:

• A)7%.
• B)3%
• C)2.5%.
• D)-3%.

---

Definitions:

Matures

Refers to the point in time when a financial instrument, like a bond or loan, reaches its due date and the principal amount must be repaid.

Compounded Monthly

Compounded monthly refers to the process of calculating interest where the interest earned each month is added to the principal, and the next month's interest is calculated on the new total.

College Tuition

The fee that students pay to cover the cost of instruction at a college or university.

Account

A record summarizing the financial transactions related to a particular aspect of a business's financial activities.