Asked by
Sabbir Hossain
on Oct 19, 2024Verified
To obtain an approximate estimate of the real interest rate, one must ________ the ________ the nominal risk-free rate.
A) add; default premium to
B) subtract; default premium from
C) add; expected inflation to
D) subtract; expected inflation from
Real Interest Rate
The rate of interest an investor expects to receive after allowing for inflation, providing a more accurate measure of investment value.
Nominal Risk-Free Rate
The rate of return on an investment without inflation taken into account, representing only the absolute interest amount.
Expected Inflation
The rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling, as anticipated by consumers, businesses, and policymakers.
- Familiarize oneself with the linkage between interest rates, expenditures by individuals, and entrepreneurial investments.
Verified Answer
MO
Learning Objectives
- Familiarize oneself with the linkage between interest rates, expenditures by individuals, and entrepreneurial investments.