Assume the expected inflation rate in Finland is 2 percent while it is 4 percent in the U.S. Also assume a risk-free asset in the U.S. is yielding 4.5 percent. What nominal rate of return should you expect on a risk-free Finnish security?
A) 2.0 percent
B) 1.5 percent
C) 3.0 percent
D) 2.5 percent
E) 4.0 percent
D) 2.5 percent
Explanation: .045 ? .04 = RFC ? .02
RFC = .025, or 2.5%
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