If the Nominal Interest Rate Is 2

question 13

Multiple Choice

If the nominal interest rate is 2.9 percent and the rate of inflation is 0.6 percent in a given year,then what is the corresponding real rate of return?

• A)3.5 percent
• B)2.3 percent
• C)-3.5 percent
• D)None of the above.

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Definitions:

Operating Leverage

A measure of how sensitive a company's operating income is to a change in its revenues, indicating the proportion of fixed costs in the company's cost structure.

Contribution Format Income Statement

An income statement format that separates fixed costs from variable costs, thus showing the contribution margin.

Degree of Operating Leverage

A financial ratio that measures the sensitivity of a company's operating income to its sales, indicating how revenue growth translates into growth in operating income.

Variable Expenses

Costs that change in proportion to the level of business activity or production volume.