The Expected Inflation Rate Is 5% and the Real Required

question 8

Multiple Choice

the expected inflation rate is 5% and the real required return is 6%, then the Fisher effect says that the nominal interest rate should be

• A) 1%
• B) 11.3%
• C) 11%
• D) 6%

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Definitions:

Note Issuance

The process of creating and distributing a debt security or promissory note, promising to pay back a specified amount of money at a future date.

Face Amount

The nominal value of a security stated by the issuer, for example, the value printed on the face of a bond.

Interest Rate

The percentage of a loan charged by a lender to a borrower for the use of assets, typically expressed as an annual percentage rate.

Note Issuance

The process of creating and distributing a promissory note, which is a financial instrument indicating a promise to pay.