If the Annual Real Interest Rate on a 10-Year Inflation-Protected

question 50

Multiple Choice

If the annual real interest rate on a 10-year inflation-protected bond equals 1.5 percent and the annual nominal rate of return on a 10-year bond without inflation protection is 4.2 percent, what average rate of inflation over the ten years would make holders of inflation-protected bonds and holders of bonds without inflation protection equally well off?

• A)1.5 percent
• B)2.7 percent
• C)4.2 percent
• D)5.7 percent

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Definitions:

Accounts Receivable Turnover

A financial ratio that measures how efficiently a company collects revenue from its credit sales, calculated by dividing net credit sales by the average accounts receivable.

Sales On Account

Transactions where goods or services are sold with the understanding that payment will be made at a later date, typically recorded as accounts receivable.

Working Capital

Refers to the difference between a company's current assets and current liabilities, indicating its short-term liquidity and ability to fund its operations.

Financial Data

Information related to money matters of a company, including its revenue, expenses, profits, and losses.