If a Lender Expects an Inflation Rate of 5% but the Inflation

question 97

Multiple Choice

If a lender expects an inflation rate of 5% but the inflation rate unexpectedly increases to 7% and if the nominal interest rate was 10%,what is the real rate of interest earned?

• A) 2%
• B) 3%
• C) 4%
• D) 5%

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Definitions:

Share Issuance

The process by which a company issues new shares of stock to investors or shareholders, increasing the number of outstanding shares.

Share Buy-backs

The process by which a company purchases its own shares from the marketplace, reducing the amount of outstanding stock on its balance sheet.

Shareholders

Individuals or entities that own one or more shares of stock in a corporation, thus having an ownership interest in the company.

Regulations

Rules and guidelines issued by governmental agencies to control or direct the conduct of activities.