Suppose That Last Year You Borrowed $100 at 5 Percent

question 72

Multiple Choice

Suppose that last year you borrowed $100 at 5 percent interest to purchase a $100 pair of Nike cross-training shoes. This year you repaid the bank with interest. If the inflation rate was 10 percent last year, your purchase of the shoes would:

• A) make you an inflation winner as you saved $5 on the shoes.
• B) make you an inflation loser as you paid $5 more than you should have for the shoes.
• C) not be affected at all by the inflation rate.
• D) be taxed according to COLA adjustments.
• E) make you an inflation loser because of bracket creep.

Grasp the concept of expected returns and their relation to investment risk.

Know the differences between equity and debt in terms of risk.

Understand the role of diversification in managing investment risk.

Recognize the measures of risk such as standard deviation, variance, and the coefficient of variation.

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Definitions:

Pooling Resources

The act of combining financial, physical, or other types of assets from multiple sources or individuals for common use or benefit.

Divorce Rates

The proportion of marriages that end in divorce within a specific time period or demographic.

World War II

A global conflict that lasted from 1939 to 1945, involving most of the world's nations and marked by significant battles, genocide, and the first use of nuclear weapons.

Industrialization

The process of transforming economies to large-scale manufacturing and technological advancements, shifting from agrarian to industrial sectors.