The Nominal Rate of Interest Is 8

question 112

Multiple Choice

The nominal rate of interest is 8.5 percent and the real rate is 5 percent. The expected rate of return on an investment is 8 percent. The firm should:

• A) Not undertake the investment because the expected rate of return of 8 percent is less than the nominal interest rate
• B) Not undertake the investment because the expected rate of return of 8 percent is less than the nominal plus the real interest rate
• C) Undertake the investment because the expected rate of return of 8 percent is greater than the difference between the nominal and real interest rates
• D) Undertake the investment because the expected rate of return of 8 percent is greater than the real rate of interest

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