Suppose the Bank of Montreal Wants a 5% Real Rate

question 106

Multiple Choice

Suppose the Bank of Montreal wants a 5% real rate of return on all its loans,and anticipates an annual inflation rate of 4%.It should therefore lend its money at a nominal interest rate of

• A)10%.
• B)9%.
• C)5%.
• D)4%.
• E)1%.

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Definitions:

OASDI

Old-Age, Survivors, and Disability Insurance, a comprehensive federal benefits program that includes retirement, disability, and survivors benefits.

State Income Tax

A tax levied by a state on the income of its residents and businesses operating within its jurisdiction.

Federal Income Tax

The annual income of individuals, corporations, trusts, and other legal organizations is subject to taxation by the IRS.

Gross Pay

It's the total amount of compensation that an employee receives before any deductions, such as taxes and retirement contributions, are made.