Suppose That at the Beginning of a Loan Contract, the Real

question 181

Multiple Choice

Suppose that at the beginning of a loan contract, the real interest rate is 4% and expected inflation is currently 6%.If actual inflation turns out to be 7% over the loan contract period, then

• A)borrowers gain 1% of the loan value.
• B)lenders gain 1% of the loan value.
• C)borrowers lose 3% of the loan value.
• D)lenders gain 3% of the loan value.
• E)lenders gain 2% of the loan value.

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Definitions:

Standard Deviation

A measure that is used to quantify the amount of variation or dispersion of a set of data values from the mean.

Distribution

The way in which something is shared out among a group or spread over an area, or the arrangement of values of a variable showing their observed or theoretical frequency of occurrence.

Variance

A statistical measure of dispersion that shows how much values in a data set differ from the mean.

Standard Deviation

A statistical measure that quantifies the amount of variation or dispersion of a set of data values from the mean, used to assess the spread of a data distribution.