If an Investor Forecasts a Future Inflation Rate of 5

question 22

Multiple Choice

If an investor forecasts a future inflation rate of 5% and requires a 3% real return, he will require a nominal return of

• A) 2%.
• B) 15%.
• C) 8%.
• D) 16.7%.

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Definitions:

Maturity Value

The amount that will be payable to the holder of a financial instrument at its maturity date, including principal and interest.

Calculating Interest

Calculating interest involves determining the amount of interest earned or paid on a financial asset or liability over a specific period, typically using the principal amount, rate, and time.

Journalize Entries

The process of recording financial transactions in a company's journal, a step in the accounting cycle that leads to the preparation of financial statements.

Voucher System

A set of procedures for authorizing and recording liabilities and cash payments.