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Quiz for AHRM 4314 - Debtor-Creditor Relationships with Glynn at Virginia Tech (VT)

Quiz Information

Material Type:Quiz 2
Professor:Glynn
Class:AHRM 4314 - Debtor-Creditor Relationships
Subject:Apparel, Housing, & Resour Mgt
University:Virginia Polytechnic Institute And State University
Term:Fall 2005
Keywords:
  • Nominal Rate of Interest
  • Real Rate of Interest
  • Either...or
  • Goods and Services
  • Perspective
  • Relationship
  • Relationships
  • Inflation Rate
  • Time Period
  • Purchasing Power
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Sample Document Text

QUI Z #2-with answers A rr~ 451 y r::- b s Name ____________________________ __ 1. (20 points) Explain the difference between "nominal" rates of interest and "real" rates of interest. The "nominal" rate of interest is simply the rate of interest (which can either befixed or adjustable) actually stated in the note or loan contract and would include the method of calculati'!fl interest (30 day monthl360 day year, actual days of the monthl365 day year, etc.). T~ d1>(,(~, The "real" rate of interest is the "nominal" (or stated) rate of interest adjusted for the economic impact of changes in the purchasing power of a dollar as measured by changes in the general level of prices for goods and services (i.e. inflation or deflation). >~a~ ,,-5 .,-f? c--Cu--e~ ~~ In an inflationary period, the real rate of interest will be less than the nominal, stated rate of interest. That reduction can go below 0%, resulting in a negative "real" rate of interest. In this case, inflation is a positive n...

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