Which of the Following Situations Would You Prefer If You

question 242

Multiple Choice

Which of the following situations would you prefer if you planned to borrow money?

• A)The nominal interest rate is 5 percent,and future prices are expected to be stable.
• B)The nominal interest rate is 9 percent,and expected inflation is 7 percent.
• C)The nominal interest rate is 4 percent,and expected inflation is 1 percent.
• D)The nominal interest rate is 25 percent,and expected inflation is 22 percent.

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Definitions:

Straight-Line Amortization

Straight-line amortization is a method of gradually reducing the cost of an intangible asset over its useful life in equal annual amounts.

Carrying Value

The book value of an asset on a company's balance sheet, calculated as the original cost minus accumulated depreciation and impairment charges.

Interest Paid

The cost incurred for borrowing money, typically expressed as a percentage of the principal loan amount.

Effective-Interest Method

A method of amortizing the discount or premium on bonds payable, which reflects the time value of money in interest expense calculation.