Assume That for a Given Year, the Nominal Interest Rate

question 69

Multiple Choice

Assume that for a given year, the nominal interest rate is 9 percent while inflation rises to 11 percent indicating a 4 percent higher rate than anticipated.Which group of people is made better off by the inflation?

• A)Those who lend at fixed interest rates
• B)Those who borrow at fixed interest rates
• C)Those who borrow at variable interest rates
• D)Those who receive fixed incomes
• E)Those who save at variable interest rates

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Definitions:

Ordinary Annuity

A series of equal payments made at fixed intervals for a specified period of time, with the payments typically occurring at the end of each period.

Compounded Monthly

Interest calculated on the principal and previously earned interest every month.

Future Value

Future value is the value of a current asset at a specified date in the future based on an assumed rate of growth over time.

Compounded Monthly

Interest calculation where interest is added to the principal balance each month, leading to an increase in the total interest earned over time.