Next Year Interest Rates Are Expected to Be 8% and the Price

question 30

Multiple Choice

Next year interest rates are expected to be 8% and the price of a barrel of oil is expected to $110. The corresponding figures for the current year are 6% and $100. Assuming that long term interest rates in a stable economic environment are 4%, which of the following statements best expresses expected inflation levels for next year?

• A) Inflation is expected to rise 2% next year.
• B) Inflation is expected to rise 4% next year.
• C) Inflation is expected to rise 10% next year.
• D) Inflation is expected to rise 25% next year.
• E) Inflation is expected to rise 100% next year.

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Definitions:

Times Interest Earned

A financial metric assessing a company's capacity to fulfill its debt responsibilities using its present earnings.

Liabilities

Financial obligations or debts of a business entity that are owed to third parties.

Contingent Liability

A potential financial obligation that may occur in the future, depending on the outcome of a specific event.

Future Technologies

Emerging or anticipated technology advancements with the potential to significantly alter industries or societies.