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:

Bonds

Bonds are debt securities issued by entities (such as governments, municipalities, or corporations) to raise funds, promising to repay the principal along with interest on a specified date.

Money Market

A financial market in which short-term (less than one year) debt securities are traded.

Debt Instruments

Financial contracts obligating the borrower to pay back the lender, including bonds, notes, and mortgages.

One Year

A period of time consisting of 12 months or 365 days, commonly used as a basis for calculating interest, returns, and performance metrics.