Suppose Certain Providers of Finance Are to Be Compensated for Their

Multiple Choice

Suppose certain providers of finance are to be compensated for their rate of time preference by a discount rate of 3 per cent, at a time when inflation is anticipated to be 4 per cent. What overall return will they require on risk- free investments?

A) 1%
B) 1.1%
C) 12%
D) 7.1%