The Expected Inflation Rate in Finland Is 2 Percent While

question 90

Multiple Choice

The expected inflation rate in Finland is 2 percent while it is 4 percent in the U.S. A risk-free asset in the U.S. is yielding 5.5 percent. What real rate of return should you expect on a risk-free Finnish security?

• A) 2.0%
• B) 2.5%
• C) 3.0%
• D) 3.5%
• E) 4.0%

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Definitions:

Discount Rate

This rate is applied in the framework of DCF analysis for the purpose of calculating the current value of foreseeable cash flows.

Compounded Annually

Compounded annually refers to the calculation and addition of interest to the principal sum of a loan or deposit once every year.

Simple Interest

Interest calculated only on the principal amount, or on that portion of the principal amount which remains unpaid.

Savings Accounts

Bank accounts that earn interest over time, allowing individuals to deposit funds for future use.