ACCA FM · Chapter 7 · Question 2 of 10
A company's money cost of capital is 12% and general inflation is 4% a year. What is the real cost of capital, to 2 decimal places?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) 7.69%
Explanation
(1 + real rate) = (1 + money rate) / (1 + inflation) = 1.12 / 1.04 = 1.0769. Real rate = 7.69%. Subtracting inflation from the money rate (8.00%) is only an approximation.
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