Suppose That You Borrow $10,000 for One Year, and at the End

question 418

Multiple Choice

Suppose that you borrow $10,000 for one year, and at the end of the year, you must repay $10,450. Also, during that year inflation was 2.5%. The real interest rate is

• A) 12.0 percent.
• B) 7.0 percent.
• C) 4.5 percent.
• D) 2.0 percent.

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Definitions:

CAPM

The Capital Asset Pricing Model, a theory used to determine the expected return on investment by correlating the risk and the non-diversifiable risk of the market.

Treynor Measures

A performance metric that assesses the returns earned on a portfolio in excess of the risk-free rate, adjusted for market risk.

Sharpe

A ratio used to calculate the risk-adjusted return of an investment, comparing the excess return of the investment to its standard deviation of returns.

Jensen Portfolio Performance Measures

A performance measurement method that evaluates the risk-adjusted return of an investment portfolio by comparing it to the expected return.