If the Real Interest Rate Is 6 Percent and the Price

question 81

Multiple Choice

If the real interest rate is 6 percent and the price level is falling at a rate of 2 percent,what is the nominal interest rate?

• A)4 percent
• B)6 percent
• C)8 percent
• D)10 percent

---

Definitions:

Retained Earnings

The portion of net income that is retained by the corporation rather than distributed to its owners as dividends.

Target Capital Structure

The relative amount of debt, preferred stock, and common equity that the firm desires. The weighted average cost of capital should be based on these target weights.

Cost of Equity

The return a company requires to decide if an investment meets capital return requirements, a crucial part of capital budgeting and often calculated using models like CAPM.

WACC

Weighted Average Cost of Capital; a calculation of a firm's cost of capital in which each category of capital is proportionately weighted. It represents the average rate that a company is expected to pay to finance its assets.