The Appropriate Discount Rate That Analysts Use in Computing the Present

question 4

Multiple Choice

The appropriate discount rate that analysts use in computing the present value of future cash flows is composed of a pure interest rate increased to reflect expected inflation.What is this pure rate called?

• A)risk-free rate.
• B)real interest rate.
• C)nominal interest rate.
• D)none of the above.

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Definitions:

Present Value

Today’s value of some amount of money that is to be received sometime in the future.

$50 Barrel

A pricing level for a barrel of crude oil, often used as a reference for energy market analysis and economic forecasting.

Extracting Oil

The process of removing crude oil from the earth through drilling or other methods to use as an energy source or in various industrial applications.

Shale

A fine-grained sedimentary rock that can contain significant amounts of oil and natural gas within its layers.