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.

---

Definitions:

Security Asset Mispricing

Occurs when the market price of an asset does not reflect its true intrinsic value, due to information asymmetry, investor irrationality, or other factors.

Management Fees

The fees paid to fund managers for their services, typically a percentage of the assets under management, in investment funds or portfolios.

Incentive Bonuses

Additional compensation provided to employees as a reward for achieving performance targets or specific goals.

Index Benchmarks

Standardized measures used to compare the performance of investments or investment managers against a representative segment of the market.