Nominal interest rates are the sum of two major components.These components are ________.
A)the real interest rate and expected inflation
B)the risk-free rate and expected inflation
C)the real interest rate and default premium
D)the real interest rate and the T-bill rate

Question

Quizplus · Accepted Answer

Nominal interest rates are composed of two major components: the real interest rate, which represents the return investors demand for delaying consumption or investing for a certain period of time, and expected inflation, which represents the expected rate of price increases over that period. Therefore, A (the real interest rate and expected inflation) is the correct answer. B, C, and D are incorrect because they do not include the real interest rate and expected inflation as two components of nominal interest rates.

Nominal Interest Rates Are the Sum of Two Major Components