If the Annual Real Rate of Interest Is 3

question 28

Multiple Choice

If the annual real rate of interest is 3.5% and the expected inflation rate is 2.5%, the nominal rate of interest would be approximately

• A)3.5%.
• B)2.5%.
• C)1%.
• D)6.8%.
• E)None of the options

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Definitions:

Issuing Company

A company that offers its securities for sale to the public or to private investors.

Indenture

A formal legal agreement, contract, or document, especially one outlining the terms of a bond or other financial debt instrument.

Debenture

A type of debt instrument that is not secured by physical assets or collateral.

Unsecured Bond

A bond that does not have specific assets as collateral, making it riskier than secured bonds, thereby relying on the issuer's creditworthiness.