You Want to Make a 5% Real Return on a Loan

question 176

Multiple Choice

You want to make a 5% real return on a loan that you are planning to make, and the expected inflation rate during the period of the loan is 6%. You should charge a nominal interest rate of:

• A) 7%.
• B) 11%.
• C) - 1%.
• D) 1%.

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Definitions:

Actor-Observer Bias

A cognitive bias that explains the tendency to attribute one's own actions to external factors while attributing other people's behaviors to their internal characteristics.

Situational Pressures

The external forces or social situations that influence an individual's behavior, decision-making process, or feelings, often leading to changed or adapted behavior to fit the circumstance.

Observers

Individuals who watch or take notice of events or behaviors, often for the purpose of recording information or making judgments.

Fundamental Attribution Error

The tendency to attribute others' actions to their character or personality while underestimating situational influences.