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The money cost of capital is 12%. The expected rate of inflation is 4%. What is the real cost of capital?
Give your answer to 2 decimal places.
Suggested Answer: A
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31 comments · newest first
RI
Rima
3 months ago
No, it's 7.14%. Use the formula!
DE
Delisa
3 months ago
Wait, isn't it 8%?
RA
Rana
3 months ago
Exactly, so 12% - 4% gives us 8%.
JE
Jerry
3 months ago
But we need to adjust for inflation.
RI
Rima
3 months ago
Yeah, 12% - 4% equals 8%.
DE
Delisa
3 months ago
It's 7.14%, right?
RA
Rana
4 months ago
Real cost of capital?
JE
Jerry
4 months ago
I think it's tricky.
JE
Jestine
4 months ago
Yep, 7.14% is spot on!
EL
Elvis
6 months ago
Just to clarify, that's after adjusting for inflation, right?
AL
Alecia
6 months ago
Wait, are you sure about that calculation?
IV
Ivan
6 months ago
Totally agree, that makes sense!
XU
Xuan
6 months ago
The real cost of capital is 7.14%.
SE
Selma
6 months ago
7.69% - Piece of cake! Now, where's the nearest stock exchange?
CE
Cecil
6 months ago
7.69% - I'm so good at this, I should start my own hedge fund.
JO
Joye
7 months ago
7.69% - Nailed it! Time to celebrate with a fancy calculator.
PE
Pedro
7 months ago
7.69% - I'm feeling like a financial wizard right now!
KE
Kenneth
7 months ago
The real cost of capital is 7.69%. Easy peasy lemon squeezy!
DA
Darnell
7 months ago
7.69%
LE
Leota
7 months ago
I feel like I might be mixing up the terms. Is the real cost of capital just the nominal rate adjusted for inflation? I hope I remember it correctly!
LE
Leila
7 months ago
I practiced a similar question last week, but I can't recall if we need to adjust for compounding or just subtract the inflation directly.
MI
Milly
8 months ago
If I remember correctly, the formula is real cost = nominal cost - inflation rate. So, it should be 12% - 4%, right?
TH
Theola
8 months ago
I think we need to use the Fisher equation to find the real cost of capital, but I'm not entirely sure how to apply it here.
FR
Freeman
9 months ago
This is a classic real vs. nominal cost of capital question. Just subtract the inflation rate from the money cost and you've got your answer.
KA
Kallie
9 months ago
Wait, I'm a little confused. Do I need to do any special calculations here or just subtract the two numbers?
LE
Lenna
9 months ago
No problem, I've got this. The real cost of capital is just the money cost minus the inflation rate. Easy peasy.
HE
Helene
9 months ago
Hmm, I'm not sure how to approach this. Do I need to do some kind of calculation or formula?
UL
Ula
9 months ago
Okay, this looks straightforward. I just need to subtract the inflation rate from the money cost of capital to get the real cost.
KE
Kelvin
2 months ago
That's correct, simple math!
KA
Karma
2 months ago
Yeah, just 12% minus 4%.
RO
Romana
2 months ago
I think it's 8%.