If a Borrower and Lender Agree to an Interest Rate

question 40

Multiple Choice

If a borrower and lender agree to an interest rate on a loan when inflation is expected to be 10% and inflation turns out to be 7% over the life of the loan,then the borrower _________ and the lender ________.

• A) gains;gains
• B) gains;loses
• C) is not affected;gains
• D) loses;gains
• E) loses;loses

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Definitions:

Dividends Payable

A liability on a company's balance sheet that represents the amount of dividends that have been declared but not yet paid to shareholders.

Cash Payments

Transactions in which money is paid out by a business, often for expenses, debts, or purchases.

Indirect Method

A technique used in cash flow statement preparation that adjusts net income for changes in non-cash accounts to reveal net cash from operating activities.

Statement of Cash Flows

A financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, dividing activity into operating, investing, and financing activities.