If the Nominal Interest Rate Is 6 Percent and the Real

question 161

Multiple Choice

If the nominal interest rate is 6 percent and the real interest rate is 2 percent,then what is the inflation rate?

• A) 8 percent
• B) 4 percent
• C) 3 percent
• D) None of the above is correct.

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Definitions:

Semistrong Efficient

A term from the Efficient Market Hypothesis indicating that all public information is reflected in stock prices, along with all historical data.

SML

The Security Market Line, a graphical representation of the capital asset pricing model (CAPM), showing the expected return of investments as a function of their beta or systemic risk.

Expected Return

The anticipated profit or loss from an investment over a specified period, factoring in all possible scenarios.

Expected Dividend Yield

An estimation of the dividend earnings on a stock investment, expressed as a percentage of the stock price.