If the CPI Is 170 at the Beginning of the Year

question 83

Multiple Choice

If the CPI is 170 at the beginning of the year and 181 at the end,and a bank is paying a nominal interest rate of 6 percent,we see that

• A)the real interest rate is negative.
• B)the interest nominal rate is negative.
• C)the real interest rate is positive and is less than 1 percent.
• D)the real interest rate is positive and is larger than 1 percent.
• E)the real interest rate is equal to zero.

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Definitions:

Exercise Value

The value of an option if it were exercised today; for call options, it is the current price of the underlying asset minus the strike price.

Strike Price

The fixed price at which the owner of an option can purchase (call) or sell (put) the underlying asset.

Convertibles

Convertibles are financial instruments, such as bonds or preferred stock, that can be converted into a predetermined number of common stock or equity shares, offering both fixed income and potential for capital appreciation.

Strike Price

The strike price is a predetermined price at which the holder of an option can buy (call option) or sell (put option) the underlying asset until the expiration date.