If the Nominal Interest Rate Is 8 Percent and Expected

question 280

Multiple Choice

If the nominal interest rate is 8 percent and expected inflation is 3.5 percent, then what is the real interest rate?

• A)11.5 percent
• B)7.5 percent
• C)4.5 percent
• D)2.5 percent

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Definitions:

Capital Gains

Capital gains are the profit made from the sale of an asset or investment which has increased in value over the holding period.

Current Income

Earnings derived from investments or employment that are received regularly, such as dividends or salaries.

High-Dividend Policy

A corporate strategy focusing on paying out a large portion of its earnings to shareholders in the form of dividends.