If a Lender Wants a Real Return of 6 Percent

question 43

Multiple Choice

If a lender wants a real return of 6 percent and she expects inflation to be 4 percent,which of the following is the correct nominal interest rate to charge?

• A) 4 percent
• B) 6 percent
• C) 2 percent
• D) 10 percent
• E) -2 percent

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Definitions:

Minimum Cash Balance

Minimum cash balance is the lowest amount of cash a company aims to maintain in its accounts to ensure operational liquidity.

Average Collection Period

Measures the time, on average, it takes for a company to receive payments owed by its customers, indicating the efficiency of its credit and collection policies.

Cumulative Surplus

The total accumulated amount of profits, after all expenses and dividends are paid, that a company has at its disposal for reinvestment or distribution.

Minimum Cash Balance

The smallest amount of cash that a company seeks to maintain in its accounts to ensure financial stability and operational efficiency.