The Difference Between a Nominal and a Real Interest Rate

question 31

Multiple Choice

The difference between a nominal and a real interest rate is

• A) that a nominal interest rate includes the overnight rate.
• B) that a nominal interest rate includes prime rate.
• C) that a nominal interest rate includes rate of inflation.
• D) none of the above.

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Definitions:

Accumulated Depreciation

Accumulated depreciation is the total amount of depreciation expense that has been recorded for an asset over its life up to the current date, reflecting its usage and wear.

Measurement Alternative

An accounting option that allows companies to report certain financial assets or liabilities at their fair market value rather than their historical cost.

Historical Cost

A valuation principle under which assets and liabilities are recorded at their original purchase price, without adjustment for inflation or market changes.

Current Cost

The amount of money that would have to be paid currently to replace an asset or to purchase a service.