If the Bank Posts a Nominal Interest Rate of 7

question 13

Multiple Choice

If the bank posts a nominal interest rate of 7 per cent per year and the inflation rate is 4 per cent per year, then the real interest rate is:

• A) -3 per cent
• B) 3 per cent
• C) 4 per cent
• D) 11 per cent

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Definitions:

Cash Receipts

The sum of all money received by a company during a specified period, from operations, investments, and financing.

Depreciation Expense

The portion of the cost of a fixed asset that is recorded as an expense each year of its useful life.

Cash Payments

Transactions involving the outflow of cash to settle obligations or purchase goods and services.

Cash Budget

A forecast of cash inflows and outflows over a certain period, used to manage the company's cash balance and ensure liquidity.