If a Lender Desires to Earn a Real Return of 3

question 141

Multiple Choice

If a lender desires to earn a real return of 3 percent on a loan and the anticipated rate of inflation is 2 percent,the lender should charge a

• A)Real interest rate of 5 percent.
• B)Nominal interest rate of 5 percent.
• C)Real interest rate of 6 percent.
• D)Nominal interest rate of 3 percent.

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Definitions:

Income Ratio

A financial metric that compares a company’s income to another measure, such as sales or assets, to assess financial performance.

Cash Distribution

The process of paying out earnings to stakeholders, often in the form of dividends to shareholders or distributions to partners.

Liquidation Balances

The final amounts owed to creditors and investors after a company has been liquidated and all assets have been sold off.

Liquidation Process

The procedure of closing a business by selling its assets to pay off its liabilities and distributing any remaining assets to the owners or shareholders.