Nico Nelson, a Management Trainee at a Large New York-Based

question 209

Multiple Choice

Nico Nelson, a management trainee at a large New York-based bank, is trying to estimate the real rate of return expected by investors. He notes that the 3-month T-bill currently yields 3 percent and has decided to use the consumer price index as a proxy for expected inflation. What is the estimated real rate of interest if the CPI is currently 2 percent?

• A) 5%
• B) 1%
• C) 3%
• D) 2%

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Definitions:

Theoretical Standards

These are rigorous, often idealized cost and efficiency standards based on perfect operating conditions, used for comparison and performance analysis.

Ideal Standards

Benchmarks used in managerial accounting that represent optimal levels of performance under perfect operating conditions.

Normal Standards

Benchmarks or norms established for a business process or operation that are considered to be a typical or expected level of performance.

Total Manufacturing Cost Variance

The difference between actual manufacturing costs and the standard costs of those manufactured items.