Given a Nominal Interest Rate of 7% and an Inflation

question 90

Multiple Choice

Given a nominal interest rate of 7% and an inflation rate of 2.5%,what is the real interest rate?

• A)4.4%
• B)4.0%
• C)7%
• D)2.5%
• E)9.5%

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Definitions:

Dividends

Payments made by a corporation to its shareholders, out of its profit or reserves, usually on a regular basis.

Investment

The allocation of resources, usually money, in order to earn income or profit over time.

Partial Equity Method

An accounting method used when an investing company has significant influence over, but not full control of, another company, requiring the investor to record its share of profits.

Equity Method

The Equity Method is an accounting technique used to record investments in other companies, recognizing the income earned from the investment proportional to ownership.