Celia Wants to Make an 8% Real Return on a Loan

question 124

Multiple Choice

Celia wants to make an 8% real return on a loan that she is planning to make, and the expected inflation rate during the period of the loan is 5%. She should charge an interest rate of

• A) 3%.
• B) 5%.
• C) 8%.
• D) 13%.

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Definitions:

Salvage Value

The estimated resale value of an asset at the end of its useful life.

Net Cash Flows

The difference between a company's cash inflows and outflows within a specific period.

Manufacturing Productivity

A measure of efficiency in production, quantifying the output generated per unit of input used in the manufacturing process.

Qualitative Characteristic

Attributes that contribute to the usefulness of financial information in making decisions, including relevance and reliability.