You Agree to Lend $1,000 for One Year at a Nominal

question 111

Multiple Choice

You agree to lend $1,000 for one year at a nominal interest rate of 10%.You anticipate that inflation will be 4% over that year.If inflation is instead 3% over that year,which of the following is true?

• A)The real interest rate you earn on your money is lower than you expected.
• B)The purchasing power of the money that will be repaid to you will be lower than you expected.
• C)The person who borrowed the $1,000 will be worse off as a result of the unanticipated decrease in inflation.
• D)The real interest rate you earn on your money will be negative.

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Definitions:

All-Stock Deal

A type of acquisition where the acquiring company purchases the target company's shares with its own stock instead of cash.

Synergy Value

The additional value created from combining two entities, often resulting in increased efficiency or market power.

NPV

Net Present Value (NPV) is a financial metric that calculates the present value of all future cash flows (positive and negative) from an investment, discounted back to the present value.

Stock Financing

The process of raising capital through the sale of shares in a company, providing investors with partial ownership and potential dividends.