If Two Parties to a Loan Contract Agree That the Lender

question 7

Multiple Choice

If two parties to a loan contract agree that the lender should earn an 8 percent increase in purchasing power as a result of a loan,and the inflation rate is 5 percent,what is the nominal interest rate?

• A)13 percent
• B)8 percent
• C)5 percent
• D)3 percent
• E)1 percent

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Definitions:

Cash Discounts

A reduction in invoice amount offered by sellers to buyers as an incentive for early payment.

Trade Accounts Payable

Liabilities owed to suppliers for goods and services received that are yet to be paid for by the business.

Balance Sheet

A financial statement that presents a company's assets, liabilities, and equity at a specific point in time, showing the company's financial condition.

Scrip Dividends

A form of dividend payment made by a company to its shareholders in the form of additional stock, instead of cash.