If the Annual Rate Is 10% and Inflation Is 4

question 57

Multiple Choice

If the annual rate is 10% and inflation is 4%, then the approximate real rate of return is:

• A)14.00%
• B)4.00%
• C)6.00%
• D)6.80%
• E)7.00%

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Definitions:

Times Interest Earned

A financial ratio that measures a company's ability to meet its debt obligations based on its current income. It's calculated by dividing earnings before interest and taxes (EBIT) by the interest expenses.

Depreciation Expense

The orderly assignment of the financial value of a real asset over its life of usefulness.

EBIT

The financial performance metric, Earnings Before Interest and Taxes, deducts all expenses from a firm's income except for interest and tax expenses.

Return On Equity

A measure of a corporation's profitability, calculated as net income divided by shareholder's equity, indicating how effectively management is using a company’s assets to create profits.