If You Expect the Inflation Rate to Be 12 Percent

question 32

Multiple Choice

If you expect the inflation rate to be 12 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)-5 percent.
• B)-2 percent.
• C)2 percent.
• D)12 percent.

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Definitions:

Statement Of Cash Flows

A financial statement that shows the cash inflows and outflows for a company over a period of time.

Noncurrent Assets

Long-term assets that are not expected to be converted into cash within one year, such as property, plant, and equipment.

Treasury Stock

Represents shares that were once part of the outstanding shares but were bought back by the company. These shares don't have voting rights or dividend rights.

Investing Activities

Transactions involving the acquisition and disposal of long-term assets and other investments not considered as cash equivalents.