Which of the Following Is Correct Concerning Real Interest Rates

question 23

Multiple Choice

Which of the following is correct concerning real interest rates?

• A) Real interest rates are constant.
• B) Real interest rates must be positive.
• C) Real interest rates must be less than nominal interest rates.
• D) Real interest rates, if positive, indicate increased purchasing power.

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Definitions:

Constant Growth DDM

A dividend discount model that assumes dividends will continue to increase at a constant growth rate indefinitely, used to evaluate the price of a stock.

Preferred Stock

A class of ownership in a corporation that has a higher claim on assets and earnings than common stock, usually with fixed dividends and without voting rights.

Plowing Back

The reinvestment of earnings by a company back into its own operation or projects, also known as retained earnings.

ROE

Return on Equity, a financial ratio that measures the profitability of a business in relation to shareholder’s equity, indicating how well a company uses investments to generate earnings growth.