With No Inflation, a Bank Would Be Willing to Lend

question 251

Multiple Choice

With no inflation, a bank would be willing to lend a business firm $5 million at an annual interest rate of 6 percent.But if the rate of inflation was anticipated to be 4 percent, the bank would most likely charge the firm an annual interest rate of

• A)2 percent.
• B)4 percent.
• C)6 percent.
• D)10 percent.Difficulty: 02 Medium

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Definitions:

Retained Earnings

Represents the portion of a company's profits not distributed as dividends to shareholders but instead reinvested in the business.

Free Cash Flow

This is a financial performance measure that shows how much cash a company generates after accounting for cash outflows to support operations and maintain its capital assets.

Management Bonuses

Additional compensation awarded to executives and managers, often tied to performance metrics such as company profitability or achievement of specific goals.

Bond Holders

Individuals or institutions that own bonds, which are debt securities issued by corporations or governments.