If a Lender Wants to Earn a Real Interest Rate

question 101

Multiple Choice

If a lender wants to earn a real interest rate of 3% and expects inflation to be 3%, he/she should charge a nominal interest rate that:

• A)Is at least 7%
• B)Is anything above 0%
• C)Equals the real rate desired plus expected inflation
• D)Equals the real rate desired less expected inflation

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Definitions:

Mechanic's Lien

A legal claim against a property for unpaid construction work or supplies, giving the claimant a right to secure payment.

Personal Property

Movable assets owned by an individual or entity, as opposed to real property like land or buildings.

Real Property

Legal term describing land and anything permanently attached to it, such as buildings.

Mortgagee

The lender in a mortgage loan agreement, typically a bank or financial institution.