16. The nominal rate of interest is 9% and the real rate is 5%. The expected rat

Question

16.              The nominal rate of interest is 9% and the real rate is 5%. The expected rate of return on an investment is 8%. The firm should:
A. Not undertake the investment because the expected rate of return of 8% is less than the nominal interest rate
B. Not undertake the investment because the expected rate of return of 8% is less than the nominal plus the real interest rate
C. Undertake the investment because the expected rate of return of 8% is greater than the difference between the nominal and real interest rates
D. Undertake the investment because the expected rate of return of 8% is greater than the real rate of interest

Explanation / Answer

B. Not undertake the investment because the expected rate of return of 8% is less than the nominal plus the real interest rate

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