Suppose the Nominal Interest Rate Is 10

question 99

Multiple Choice

Suppose the nominal interest rate is 10%.The rate of inflation has been 4% and is expected to continue at 4% in the future.The real interest rate,which determines the firm's decision to purchase capital,is therefore

• A)4%.
• B)6%.
• C)10%.
• D)14%.
• E)indeterminate.

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Definitions:

Portfolio

A compilation of financial holdings comprising stocks, bonds, commodities, physical currency, and equivalents to cash, which cover mutual funds and ETFs.

Stocks

Shares of ownership in a corporation, representing a claim on part of the corporation's assets and earnings.

Mean

The average of a set of numbers, calculated by adding all the numbers together and dividing by the count of the numbers.

Variance

A measure of the spread between numbers in a data set, indicating how much the numbers differ from the average.