Suppose You Lend $1,000 at an Interest Rate of 10

question 9

Multiple Choice

Suppose you lend $1,000 at an interest rate of 10 percent over the next year.If the expected real interest rate at the beginning of the loan contract is 4 percent,then what rate of inflation over the upcoming year would be most beneficial to you as the lender? An inflation rate

• A)equal to 0 percent.
• B)greater than 6 percent.
• C)equal to 6 percent.
• D)equal to 4 percent.

---

Definitions:

Maturity Date

The final payment date of a loan or other financial instrument, at which point the principal (and all remaining interest) is due to be paid.

Bond's Principal

The face value of a bond, which is the amount the issuer agrees to pay the bondholder at the time of maturity, excluding interest payments.

Redemption Date

The specific date at which a bond or other debt instrument can be repaid before its maturity.

Initial Public Offerings

The process by which a private company offers shares to the public in a new stock issuance to raise capital.