Which of the following statement(s) is (are) true?

I) The real rate of interest is determined by the supply and demand for funds;

II) The real rate of interest is determined by the expected rate of inflation;

III) The real rate of interest can be affected by actions of the Fed;

IV) The real rate of interest is equal to the nominal interest rate plus the expected rate of inflation.

A. cannot be zero, for investors would be unwilling to invest in common stocks.

B. cannot be zero, for investors would be unwilling to invest in common stocks and is negative, as common stocks are risky.

C. cannot be zero, for investors would be unwilling to invest in common stocks and must always be positive, in theory.

D. must always be positive, in theory.

E. is negative, as common stocks are risky

A. E(r) = 0.10; Variance = 0.25

B. E(r) = 0.15; Variance = 0.20

C. E(r) = 0.12; Variance = 0.35

D. E(r) = 0.10; Variance = 0.20

E. E(r) = 0.15; Variance = 0.25

A. the capital gain yield during the period, plus the inflation rate.

B. the change in stock price.

C. the dividend yield, plus the risk premium.

D. the capital gain yield during the period, plus the dividend yield.

E. the current yield, plus the dividend yield.

A. II only

B. III only

C. I and II only

D. I only

E. I, II, and III

A. 45%

B. 5%

C. 50%

D. 32%

E. 40%

A. geometric return

B. effective annual rate

C. arithmetic average

D. average annual return

E. historical annual average

A. 49%

B. 18%

C. 31%

D. 12%

E. 29%