If You Expect the Inflation Rate to Be 4 Percent

question 77

Multiple Choice

If you expect the inflation rate to be 4 percent next year and a one year bond has a yield to maturity of 7 percent,then the real interest rate on this bond is

• A)-3 percent.
• B)-2 percent.
• C)3 percent.
• D)7 percent.

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Definitions:

Consolidation Entry

An accounting record that combines the financial statements of two or more merged or acquired companies.

Investment in Thompson Co.

A specific line item in financial statements or records indicating the amount of money allocated towards the purchase of stakes or securities in Thompson Co. by an investor or another company.

Accrual of Earnings

The accrual of earnings refers to the recognition of revenues and expenses when they are earned or incurred, regardless of when cash transactions occur.

Dividends

Dividends are payments made by a corporation to its shareholders, usually as a distribution of profits, reflecting the shareholders' ownership in the company.