If the Nominal Interest Rate Is 4 Percent and Expected

question 109

Multiple Choice

If the nominal interest rate is 4 percent and expected inflation is 2.5 percent,then what is the expected real interest rate?

• A)1.6 percent
• B)10 percent
• C)6.5 percent
• D)1.5 percent

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Definitions:

Earnings Multiple

A valuation ratio that compares a company's current share price to its per-share earnings, commonly used to gauge stock prices.

Abnormal Earnings

Earnings that are above or below the normal or expected level due to unusual circumstances or events.

Actual Earnings

The real profits generated by a company within a specific period, usually reported quarterly or annually.

Earnings Quality

An assessment metric that evaluates the degree to which a company's earnings are derived from sustainable sources and are repeatable, controllable, and bankable.