You Want to Make a 10% Real Return on a Loan

question 262

Multiple Choice

You want to make a 10% real return on a loan that you are planning to make, and the expected inflation rate during the period of the loan is 4%. You should charge a nominal interest rate of

• A) -6%.
• B) 6%.
• C) 10%.
• D) 14%.

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Definitions:

Depreciation

The systematic reduction in the recorded cost of a fixed asset to allocate its expense over its useful life.

Total Expenses

Total Expenses refer to the aggregate amount of all operational, administrative, and financial costs incurred by a business during a specific period.

Total Assets

The sum of all resources owned by a company, valued at cost or market value, which include both current and non-current assets.

Electric Bill

A monthly statement charging for the consumption of electrical power provided by a utility company.