A firm is considering an investment project with a 5% expected return. If the current interest rate is 3%, should the firm proceed with the investment?

• A. Yes, because the expected return exceeds the interest rate.
• B. No, because the expected return is less than the nominal interest rate.
• C. No, because the interest rate is too high.
• D. Yes, because the interest rate is lower than the inflation rate.

Answer: (A)