If the Nominal Interest Rate Is 1 Percent and the Inflation

question 46

Multiple Choice

If the nominal interest rate is 1 percent and the inflation rate is 5 percent, the real interest rate is:

• A) 1 percent.
• B) 6 percent.
• C) -4 percent.
• D) -5 percent.

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Definitions:

Cost of Capital

The minimum earnings rate required by a company on its investment endeavors to maintain market valuation and attract funding.

Budgetary Limit

The maximum amount of money allocated for a specific purpose in a budget.

IRRs

The Internal Rate of Return is the discount rate at which the net present value of all cash flows from a specific project is zero.

NPV

Net Present Value, a calculation used to determine the present value of a series of future cash flows by discounting them at a specific rate.