If an Investment Costing $2000 Is Expected to Generate Real

question 47

Multiple Choice

If an investment costing $2000 is expected to generate real cash flows of $900 p.a.for three years and prices are expected to increase at a rate of 10% p.a. ,what is the real required rate of return if the nominal cost of capital is 15%?

• A)6%
• B)5%
• C)1.05%
• D)4.55%

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Definitions:

Debits

Entries that are recorded on the left side of accounting ledgers and journals, representing increases in assets or expenses or decreases in liabilities, equity, and income.

Assets

Resources owned by a company or individual that have economic value and can provide future benefits.

Liabilities

Liabilities refer to financial obligations or debts that a company owes, which are expected to be settled through the transfer of assets, provision of services, or other economic benefits.

Account

A record summarizing all the transactions pertaining to a single item in the accounting equation.