Suppose That the Nominal Interest Rate Is 5 Percent and the Expected

question 33

Multiple Choice

Suppose that the nominal interest rate is 5 percent and the expected inflation rate is 3 percent.What happens with the value of savings?

• A) The dollar value of savings increases by 8 percent,and the value of savings measured in goods is expected to increase by 3 percent.
• B) The dollar value of savings increases by 8 percent,and the value of savings measured in goods is expected to increase by 5 percent.
• C) The dollar value of savings increases by 5 percent,and the value of savings measured in goods is expected to increase by 2 percent.
• D) The dollar value of savings increases by 5 percent,and the value of savings measured in goods is expected to increase by 3 percent.

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Definitions:

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Standard Deviation

Standard deviation is a statistical measure that quantifies the amount of variation or dispersion of a set of data values.

Return Volatility

A quantitative assessment of the spread of returns for a specific security or market index.