If we assume that inflation, the real cost of capital and the nominal cost of capital are always positive, which of the following statements is true? Question 3Select one: a. The expected inflation rate will always be greater than the nominal cost of capital. b. The nominal cost of capital will always be greater than the real cost of capital. c. The real cost of capital will always be greater than the nominal cost of capital. d. The expected inflation rate will always be greater than the real cost of capital.

If we assume that inflation, the real cost of capital and the nominal cost of capital are always positive, which of the following statements is true? Question 3Select one: a. The expected inflation rate will always be greater than the nominal cost of capital. b. The nominal cost of capital will always be greater than the real cost of capital. c. The real cost of capital will always be greater than the nominal cost of capital. d. The expected inflation rate will always be greater than the real cost of capital.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter9: Corporate Valuation And Financial Planning

Section: Chapter Questions

Problem 5Q

See similar textbooks

Similar questions

choose 1 answer
Question No. 3: What is financial market equilibrium? And then explain its relation to required rate of return.
1. The opportunity costs are related with: A) Inflation rate; B) Interest rate; C) Not doing something; 2. People prefer to receive cash: A) Sooner than later; B) Later than sooner; C) Doesn't matter when; 3. Financial decisions must be based on: A) Risk assessment; B) Time adjusted cash flows; C) Inflation assessment; 4. Future vale is equal: A) Initial investment X (1 + k)" ; B) Initial investment X (1+k.n); C) A+B 5. The term (1 + k)" is known as: A) Present value interest factor; B) Future value interest factor; C) Risk assessment factor; 1 (1+ p)" A) Present value interest factor; B) Future value interest factor; C) Risk assessment factor; 6. The term is known as: 7. A present value problem can involve: A) Series of future cash flows; B) Single future cash flow; C) A+B 8. Present value of series of future cash flow is presented in equation: n A) PV = CF₁ t=1 n B) PV = Σ t=1 1 (1+p)" CFt (1+p)" ; C) A+B 9. Cash flows directly attributed to the evaluating projects are known as: A)…
Suppose interest rates in the economy increase. How would such a change affect the costs of both debt and common equity based on the CAPM?
Question 1: a. The risk structure of interest rates and the term structure of interest rates are identical. True or False? Explain. b. The yield curve is a forecasting tool for inflation, the business cycle, and monetary policy. True or False? Explain.
Answer quickly please Nominal Risk-Free Rate (NRFR) , considers the conditions in the capital market and Expected rate of inflation Select one: True False
This theory assumes that the driver of interest rates are the savings and investment flows. A• Interest rate theory B• Market theory C• Biased expectation theory D• Market Segmentation theory
An efficient capital market is best defined as a market in which security prices reflect which one of the following? Multiple Choice A Current inflation B A risk premium C All available information D The historical arithmetic rate of return E The historical geometric rate of return
Let rf be the risk free rate of interest. E[r e ] be the expected return of some risky asset. Suppose that this risky asset pays out in states when the aggregate endowment is particularly low. There are three possibilities: ( a) E[r e ] > rf (b) E[r e ] = rf (c) E[r e ] < rf Which case applies to E[r e ] and why?
Which of the following statements correctly describe how the present value of a future expected cash flow may vary with different factors? Group of answer choices A. More than one of the other options are correct. B. As the expected loss of purchasing power due to inflation increases, then, holding all else constant, the present value of a future expected cash flow will decrease. C. As the period of time we have to wait until we receive a future expected cash flow decreases, then, holding all else constant, the present value of the cash flow will decrease. D. As the risk associated with a future expected cash flow increases, then, holding all else constant, the present value of the cash flow will increase.
. Suppose interest rates are increasing enough that it can be modeled with r →∞.(a) What is the value of a Call?(b) What is the value of a Put?(c) Explain both answers in terms of finance.
Which of the following is true about Interest Rate? i. The Fisher Effect illustrates the positive relationship between inflation and nominal interest rates. ii. APR will always be greater than the EAR. iii. We can find the nominal interest rate by adding the default and maturity premiums to the sum of the real rate and inflation. O A. ii and i only O B. i and ii only OC. i only O D. i, ii, and iii