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

question 120

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

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Definitions:

EMV

Expected Monetary Value; a quantitative risk analysis tool used to help in decision-making by calculating the anticipated monetary outcome of different scenarios.

Payoff

The return or benefit received from an investment or action, often used in the context of games, negotiations, and financial investments.

States of Nature

Hypothetical conditions that represent possible scenarios or outcomes in decision making and probabilistic analysis.

EMV

Refers to Expected Monetary Value, a decision-making tool used in risk management to quantify potential losses or gains in financial terms.