Suppose That a Bank Wishes to Make a 5% Rate

question 23

Multiple Choice

Suppose that a bank wishes to make a 5% rate of return on a 1-year loan but expects inflation over the course of the loan to be roughly 3%.Which statement is TRUE?

• A) As long as the bank charges a nominal interest rate of at least 5%,it will earn its expected return.
• B) If the bank charges an interest rate of 8% or higher,it will earn the expected return.
• C) If the bank charges 8% and the inflation rate is less than 3%,then the bank will have earned a higher rate of return than expected.
• D) If the bank charges 8% and the inflation rate is more than 3%,then the bank will have earned a higher rate of return than expected.

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Definitions:

Pension Benefits

Payments made from a retirement plan, often based on years of service and salary history, made to eligible employees after retirement.

Workers' Compensation Statutes

Laws that provide financial compensation and medical care for workers who are injured or become ill as a direct result of their job, regardless of fault.

Independent Contractors

Individuals or entities hired to perform specific tasks or services for another entity as non-employees, often with their own tools, and responsible for their own tax obligations.

Domestic Employees

Domestic employees are workers employed within a household, performing tasks such as cleaning, cooking, and caregiving, typically on a personal or private basis.