If You Expect the Inflation Premium to Be 2%, the Default

question 68

Multiple Choice

If you expect the inflation premium to be 2%, the default risk premium to be 1% and the real interest rate to be 4%, what interest would you expect to observe in the marketplace under the simplest form of market interest rates?

• A)4%
• B)7%
• C)2%
• D)1%

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Definitions:

Accounts Payable

Obligations a company has to pay off in the near future to its suppliers or creditors, usually within one year.

Inventory

The total amount of goods, materials, and products held by a company for the purpose of sale or production, representing both a current asset and an integral part of the supply chain.

Retained Earnings

The portion of net income that is not distributed as dividends to shareholders, but retained by the company for reinvestment.

Notes Payable

Short-term or long-term liabilities representing amounts the company owes because it has issued promissory notes.