Real risk-free interest rate in addition with an inflation premium is equal to_____________?
Correct answer: B. Quoted risk-free interest rate
- A. Required interest rate
- B. Quoted risk-free interest rate
- C. Liquidity risk-free interest rate
- D. Premium risk-free interest rate
Explanation
Adding the real risk-free rate to the expected inflation premium gives the quoted or nominal risk-free rate. The quoted rate therefore reflects both the purchasing-power component and inflation.
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Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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