CPA-BUSINESS practice question 9 of 35
Initially the nominal interest rate is 8 percent and the inflation rate is 6 percent. One year later, the nominal interest rate rises to 12 percent while the inflation rate rises to 10 percent. It follows that the real rate of interest:
Full set: 530 questionsCorrect Answer:
A. Has remained the same.
Explanation
Choice "a" is correct. The real interest rate equals the nominal interest rate minus the inflation rate. Thus, the real interest rate in the first year is: real interest rate = 8 − 6 = 2 and the real interest rate in the next year is: real interest rate = 12 − 10 = 2.
Keep practicing
Take the free CPA-BUSINESS practice test
Ten exam-style questions with answers and explanations, plus the exam facts and study guides.
More questions
Other CPA-BUSINESS practice questions
- Question 1In planning and controlling capital expenditures, the most logical sequence is to begin w…
- Question 2Price owns 2,000 shares of Universal Corp.'s $10 cumulative preferred stock. During its f…
- Question 3Entry into monopolistic competition is:
- Question 4Which of the following is incorrect with regard to government intervention in market oper…
- Question 5Which of the following is incorrect with regard to value chain analysis?
- Question 6Having identified their mission, overall strategy, and critical success factors, organiza…