The real rate of return is related to O The risk-free rate The risk-free and the inflation rate The unemployment rate and the inflation rate The risk-free rate and the unemployment rate O The inflation rate

The real rate of return is related to O The risk-free rate The risk-free and the inflation rate The unemployment rate and the inflation rate The risk-free rate and the unemployment rate O The inflation rate

Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)

7th Edition

ISBN:9780357033609

Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Chapter2: Using Financial Statements And Budgets

Section: Chapter Questions

Problem 7LO

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Concept explainers

Market Efficiency

Market efficiency refers to the market's ability to provide investors with all available information about investment options for buying and selling securities. Market efficiency reflects the true value of securities without undervaluing or overvaluing them. When the quality and quantity of information increase, the market becomes more efficient, allowing it to reduce arbitrage and obtain higher market returns from investment. In a well-functioning market, everyone receives all information completely and immediately at no cost. It opens up a plethora of opportunities for investors to access various investment options.

Question

choose 1 answer

The real rate of return is related
to
O The risk-free rate
The risk-free and the inflation rate
The unemployment rate and the
inflation rate
The risk-free rate and the
unemployment rate
O The inflation rate

Expert Solution

Step 1

Real rate of return
An annual profit percentage that is earned on the investment, being adjusted for inflation. Adjustment of the nominal return for compensating for inflation allows an investor in determining how much of the nominal return is the real return.

Step 2

It is computed by the formula:

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