If Your Bank Gives You a $2,000 Loan at 8

question 12

Multiple Choice

If your bank gives you a $2,000 loan at 8% per year, but deducts the interest in advance, is 8% the "real" rate of interest that you will pay?

• A) Yes.
• B) No.The interest rate is actually lower than 8 percent.
• C) No.The interest rate is actually higher than 8 percent.
• D) There is not enough information to answer this question accurately.

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Definitions:

Debt/Equity Ratio

An indicator for evaluating a company's use of financial leverage, obtained by dividing the firm's overall liabilities by the equity of its shareholders.

Net Income

The earnings of a company after all expenses, including taxes and operational costs, have been deducted from revenues, reflecting the company's profit.

Accounts Receivable

The amount that debtors are required to pay to a company for the goods or services they have received but have not yet compensated for.

Accounts Payable

Obligations of a business to pay for goods or services that have been delivered but not yet paid for.