Imagine That You Borrow $5,000 for One Year and at the End

question 232

Multiple Choice

Imagine that you borrow $5,000 for one year and at the end of the year you repay the $5,000 plus $600 of interest.If the inflation rate was 4%, what was the real interest rate you paid?

• A)16 percent
• B)12 percent
• C)8 percent
• D)6 percent
• E)3 percent

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Definitions:

Opportunity Cost

The expense associated with missing out on the second-best option when a choice is made.

Contribution Margin

The difference between sales revenue and variable costs, indicating how much revenue is available to cover fixed costs and generate profit.

Variable Cost

Costs that change in proportion to the level of activity or volume of production, such as materials and labor.

Cost of Goods Sold

The total cost directly associated with producing the goods sold by a business during a specific period, including labor, materials, and manufacturing overhead.