If You Borrow Money at a 9% Nominal Rate and the Inflation

question 69

Multiple Choice

If you borrow money at a 9% nominal rate and the inflation rate is 2%,what is the real interest rate on the loan?

• A) 9.0%
• B) 11.0%
• C) 7.0%
• D) 2.0%
• E) 4.5%

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Definitions:

Cost Recovery Method

An accounting technique used for recognizing revenue only once the costs of the sold goods or services have been recovered.

Uncollectible Accounts

Also known as bad debts, these are receivables that a business is unable to collect, often leading to their write-off as an expense.

IFRS

International Financial Reporting Standards, a set of accounting principles that dictate how companies' financial statements are prepared.

Initial Franchise Fee

A one-time payment made by a franchisee to the franchisor when a new franchise agreement is signed, covering rights to use trademarks, systems, and support.