You Borrow $10,000 from a Bank for One Year at a Nominal

question 247

Multiple Choice

You borrow $10,000 from a bank for one year at a nominal interest rate of 5%.If inflation over the year is 2%,what is the real interest rate you are paying?

• A)2%
• B)2.5%
• C)3%
• D)5%

---

Definitions:

Treasury Stock

Stocks that the issuing entity initially sold and then bought back, decreasing the total number of stocks available in the market.

Contra Equity

An equity account that reduces the total amount of equity, such as treasury stock or drawings account.

Asset Account

An asset account is a ledger account that tracks the value of assets owned by an individual or organization, including tangible and intangible items of value.

Stock Dividend

A payment made in the form of additional shares rather than cash, reflecting a company's desire to reward shareholders without reducing its cash reserves.