The Bank of Canada Has Control Over the Long-Term Real

question 23

Multiple Choice

The Bank of Canada has control over the long-term real interest rate provided that three variables remain unchanged.These three variables include all of the following,except

• A) the expected rate of inflation.
• B) the default premium.
• C) term structure effects.
• D) the short-term real interest rate.

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Definitions:

Traditional NPV

Net Present Value; a method of evaluating the profitability of an investment by calculating the present value of expected future cash flows minus the initial investment cost.

Beta

A measurement of the volatility of a stock or a portfolio in comparison to the market as a whole.

Discount Rate

The rate employed in discounted cash flow assessments to establish the current valuation of anticipated future cash flows.

Certainty Equivalent Approach

A method used in capital budgeting and investment theory that adjusts future cash flows to account for risk, making them equivalent in value to certain cash flows.