The Nominal Interest Rate

question 118

Multiple Choice

The nominal interest rate:

• A)varies directly with the rate of expected inflation in an economy.
• B)is the interest rate expressed in dollars of constant purchasing power.
• C)equals the difference between the real interest rate and the inflation rate.
• D)is the basis for decisions taken by the lenders and the borrowers in an economy.
• E)is the percentage increase in the average price level from one year to the next.

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Definitions:

Useful Life

The expected period of time during which an asset remains useful for the purposes for which it was acquired.

Payback Period

The amount of time it takes for an investment to generate an amount of income or cash equivalent to the cost of the investment itself.

Discount Rate

The discount rate is the interest rate used in discounted cash flow analysis to determine the present value of future cash flows.

Net Cash Inflows

The total cash receipts minus cash payments over a period of time from operational, financial, and investing activities.