You Plan to Make Annual Deposits into a Bank Account

question 110

Multiple Choice

You plan to make annual deposits into a bank account that pays a 5.00% nominal annual rate.You think inflation will amount to 2.50% per year.What is the expected annual real rate at which your money will grow?

• A)1.98%
• B)2.20%
• C)2.44%
• D)2.68%

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Definitions:

Forward Exchange Rate

A predetermined price at which a currency transaction will occur at a future date.

Mexican Treasury

Refers to the governmental department responsible for issuing Mexican government securities, including bonds and treasury bills.

Spot Exchange Rate

The current market price for immediate exchange of currencies.

British Securities

Financial instruments issued in the United Kingdom, including stocks, bonds, and other investment vehicles.