If the Nominal Interest Rate Is 10 Percent and the Rate

question 25

Multiple Choice

If the nominal interest rate is 10 percent and the rate of inflation is 3 percent,what is the real interest rate?

• A) -7 percent
• B) -5 percent
• C) 5 percent
• D) 7 percent

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Definitions:

Double Diminishing-Balance

A method of accelerated depreciation which calculates depreciation at twice the rate of the straight-line depreciation method on the remaining book value each year.

Depreciation Expense

An accounting method of allocating the cost of a tangible asset over its useful life, representing how much of an asset's value has been used.

Diminishing-Balance

A method of depreciation that accelerates the rate at which an asset loses value, applying a constant rate to the declining book value each period.

Constant Percentage

A method or rate that does not change over time, often used in calculations of growth, discount, or interest rates.