The Real Rate of Interest Is

question 393

Multiple Choice

The real rate of interest is

• A) the nominal rate of interest divided by the anticipated rate of inflation.
• B) negative if the anticipated rate of inflation is zero.
• C) the market rate of interest expressed in today's dollars.
• D) the nominal rate of interest minus the anticipated rate of inflation.

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Definitions:

Maturity

The date on which the principal amount of a financial instrument, such as a bond or loan, becomes due and is to be paid.

Price Sensitive

Pertaining to stocks or securities that are highly responsive to changes or news in the market, affecting their price movements.

Zero-Coupon Bond

A debt security that does not pay interest (coupon) but is traded at a deep discount, rendering profit at maturity when the bond is redeemed for its full face value.

Yield to Maturity

The total return anticipated on a bond if the bond is held until it matures, reflecting interest payments and price changes.