If the Current Inflation Rate Is 5%, Then the Nominal

question 90

Multiple Choice

If the current inflation rate is 5%, then the nominal rate necessary for you to earn an 8% real interest rate on your investment is closest to:

• A)13.4%
• B)4.9%
• C)3.0%
• D)13.0%

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Definitions:

Index Fund

A mutual fund holding shares in proportion to their representation in a market index such as the S&P 500.

Investment Club

A group of individuals who pool their money to make investments, often operating under a democratic structure to make decisions.

EMH

The Efficient Market Hypothesis, a theory that suggests all known information is already reflected in stock prices, and therefore, beating the market consistently through stock selection or market timing is unlikely.

Passive Investment

An investment strategy that involves minimal buying and selling actions, typically focused on long-term investments in index funds or ETFs.