A reduction in the rate of depreciation will cause the discounted present value of expected profits to
A) decrease.
B) increase.
C) remain unchanged if the real interest rate increases by the same amount.
D) none of the above
Question 2
For this question, assume that expected inflation is equal to the nominal interest rate. In this situation, which of the following is correct?
A) The real interest rate is negative.
B) The real interest rate is positive.
C) The real interest rate is higher than the nominal interest rate.
D) The real interest rate is zero.
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