If the Nominal Interest Rate Is 6 Percent and the Rate

question 388

Multiple Choice

If the nominal interest rate is 6 percent and the rate of inflation is 4 percent, then the real interest rate is

• A)-4 percent.
• B)2 percent.
• C)4 percent.
• D)8 percent.

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Definitions:

Pre-Tax Salvage

The estimated value of an asset before taxes that can be recovered at the end of its useful life through sale or disposal.

Variable Costs

Costs that change in proportion to the amount of goods or services produced or sold by a business.

Depreciation Tax Shield

The reduction in income tax that results from the allowance for depreciation expenses on an asset, which can lower taxable income.

Marginal Tax Rate

The rate of tax that applies to the last dollar of the taxpayer's income, indicating the percentage of tax applied to your income for each tax bracket in which you qualify.