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# nominal interest rate

How much would you expect to receive for a nominal interest rate in Holland if funds can be invested in the U.S. at a rate of 7% when inflation is expected to be 4% in the U.S. and 8% in Holland?

The company cost of capital for a firm with a 60/40 debt/equity split, 8% cost of debt, 15% cost of equity, and a 35% tax rate would be:

An investor receives a 15% total return by purchasing a stock for \$40 and selling it after one year with a 10% capital gain. How much was received in dividend income during the year?

What is the current price of a share of stock for a firm with \$5 million in balance-sheet equity, 500,000 shares of stock outstanding, and a price/book value ratio of 4?

#### Solution Preview

1. How much would you expect to receive for a nominal interest rate in Holland if funds can be invested in

the U.S. at a rate of 7% when inflation is expected to be 4% in the U.S. and 8% in Holland?

If the 7% US return rate is norminal return rate,
The real return rate in US = 7% - 4% = 3%
The norminal return rate in Holland = 3% + 8% = ...

#### Solution Summary

Determine nominal interest rate.

\$2.19