Question

If the nominal interest rate is 10% and the inflation rate is 5%. What is the real interest rate? (Do not round intermediate calculations. Round your answer to 2 decimal places) 4.76 5.13 2.34 5.00 0.4 Question 2 FinanceCorp has fixed costs of $12 million and profits of $4 million. What is its degree of operating leverage (DOL? (Do not round intermediate calculations. Round your answer to 2 decimal places) 2.50 3.30 4.00 1.00

Answer 1

Calculate the real interest rate as follows:

Real interest rate = ((1+ Nominal interest rate) / (1+Inflation rate))-1

= ((1+10%)/(1+5%))-1

=1.0476 - 1

= 0.0476 or 4.76%

Therefore, the real interest rate is 4.76%.

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Calculate the degree of operating leverage as follows:

Degree of operating leverage = ((fixed cost/Profit)+1)

= (($12 Million/$4 million)+1)

=3+1

=4.00

Therefore, the degree of operating leverage is 4.00.

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Next time please ask second question separately.