If a Borrower Promises to Pay You $1,900 Nine Years

question 104

Multiple Choice

If a borrower promises to pay you $1,900 nine years from now in return for a loan of $1,000 today,what effective annual interest rate is being offered if interest is compounded annually?

• A) 5.26%
• B) 7.39%
• C) 9.00%
• D) 10.00%

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Definitions:

Bounded Rationality

A concept suggesting that individuals make decisions based on the limited information they have and their cognitive limitations.

Problem Identification

The initial step in the problem-solving process that involves recognizing and defining a problem or challenge that needs to be addressed.

Framing

The way information is presented or communicated, which influences how it is perceived and interpreted.

Anchoring Effect

A cognitive bias where individuals rely too heavily on an initial piece of information (the "anchor") when making decisions.