You Borrow $10,000 Today at a Nominal Rate of 5

question 8

Multiple Choice

You borrow $10,000 today at a nominal rate of 5 percent; inflation for the past 10 years has been exactly 2 percent.Today,inflation instantly rises to 7 percent and stays that way for the duration of your loan.Based on the above information,ceteris paribus (all else equal) ,today

• A) the real rate of interest on your loan is 14 percent.
• B) the real rate of interest on your loan was previously 10 percent and is now 35 percent.
• C) the real rate of interest on your loan is now -2 percent.
• D) you will pay the lender back exactly $9,500.
• E) you will pay the lender back exactly $10,700.

Analyze the effects of transactions on cash flows.

Compute cash payments and receipts related to operating activities.

Determine the impact of changes in current asset and liability accounts on cash flows.

Explain the significance and calculation of free cash flow.

---

Definitions:

Conformity

The act of matching attitudes, beliefs, and behaviors to what is considered normal or acceptable in a social group or society.

Ambiguous

Something unclear or vague that can be understood in more than one way.

Clearly Defined

Described or detailed in a way that leaves no doubt about the meaning or requirements.

Altruistic Behavior

Altruistic behavior is selfless actions done for the benefit of others, without expectation of reward or recognition.