The XYZ Corporation Can Make a Real (Inflation-Adjusted)return on an Investment

question 71

Multiple Choice

The XYZ Corporation can make a real (inflation-adjusted) return on an investment of 9 percent.The nominal rate of interest is 13 percent and the rate of inflation is 7 percent.We can conclude that the:

• A) investment will be profitable.
• B) investment will be unprofitable.
• C) real rate of interest is 4 percent.
• D) real rate of interest is 2 percent.

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Definitions:

Direct Financing Lease

A leasing arrangement in which the lessor finances the leased asset, and the lessee's payments are structured to cover the asset's costs and provide a return to the lessor.

Implicit Interest Rate

Refers to the interest rate in a financial transaction that is not explicitly stated but rather implied by the terms of the arrangement.

Present Value

The present worth of a future amount of money or a series of cash flows, discounted at a certain rate of return.

Annual Lease Payment

The total amount payable over a year under the terms of a lease agreement.