You Lend $5,000 to a Friend for One Year at a Nominal

question 199

Multiple Choice

You lend $5,000 to a friend for one year at a nominal interest rate of 10%.The CPI over that year rises from 180 to 190.What is the real rate of interest you will earn?

• A)0%
• B)4.4%
• C)5.5%
• D)5.8%
• E)7.8%

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Definitions:

Mental Capacity

The legal ability of a person to make decisions or enter into a contract, which requires understanding and appreciating the implications of one's actions.

Valid Contract

An agreement that has met all legal requirements, making it enforceable by law.

Inter Vivos

A transaction between living persons.

Causa Mortis

A legal term referring to the transfer of property made by an individual in anticipation of imminent death.