A Bank Makes a Loan for One Year

question 252

Multiple Choice

A bank makes a loan for one year. The nominal annual interest rate is 7.5%. The real rate is 4%. Over the course of the year, overall prices increase by 4%. This rate of inflation hurt the _____ because the actual rate of inflation was _____ than the anticipated rate.

• A) borrower; lower
• B) borrower; higher
• C) lender; higher
• D) lender; lower

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Definitions:

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Suspicious Story

A narrative or explanation that causes doubt or skepticism due to inconsistencies or lack of evidence.

Injury Description

A detailed account or explanation of an injury, including its nature, cause, and extent.

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The incorrect utilization or handling of something, frequently to unjustly or inappropriately obtain advantages.