The Market Interest Rate in Alpha Is 7% and the Market

question 125

Multiple Choice

The market interest rate in Alpha is 7% and the market interest rate in Beta is 10%,but the inflation rate in Alpha is 5% and inflation rate in Beta is 6%.Which of the following statements is true?

• A) The real interest rate is higher in Alpha,but the nominal interest rate is higher in Beta.
• B) The real interest rate is lower in Alpha,but the nominal interest rate is lower in Beta.
• C) Both the real and nominal interest rates are higher in Alpha.
• D) Both the real and nominal interest rates are higher in Beta.
• E) The real and nominal interest rates are the same in Alpha and Beta.

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Definitions:

Equity Instruments

Financial instruments that represent ownership in a company, such as stocks, giving holders a claim on the company's residual assets and earnings.

Remuneration Expense

The total cost incurred by an organization for the payment of salaries, wages, and other forms of employee compensation.

Exercise Price

The price at which the holder of an option can buy (in the case of a call option) or sell (in the case of a put option) the underlying asset.

Share Options

Financial derivatives that give the holder the right, but not the obligation, to buy or sell shares of a company at a predetermined price within a specific timeframe.