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:

Residual Dividend Policy

A strategy where dividends are based on earnings remaining after all project capital needs are met.

Target Capital Structure

Target capital structure refers to the mix of debt, equity, and other financing sources a company aims to maintain to fund its operations and growth, while optimizing its cost of capital.

Net Income

The sum a company keeps as profit after deducting all operational costs and tax obligations from its gross revenue.

Total Dividend Payment

The sum of all dividends paid to shareholders over a specific period, usually expressed on a per share basis.