Marta Lends Money at a Fixed Interest Rate and Then

question 17

Multiple Choice

Marta lends money at a fixed interest rate and then inflation turns out to be higher than she had expected it to be.The real interest rate she earns is

• A)higher than she had expected,and the real value of the loan is higher than she had expected.
• B)higher than she had expected,and the real value of the loan is lower than she had expected.
• C)lower than she had expected,and the real value of the loan is higher than she had expected.
• D)lower then she had expected,and the real value of the loan is lower than she had expected.

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Definitions:

Securities

Financial instruments that represent an ownership position in a publicly-traded corporation, a creditor relationship with a governmental body or a corporation, or rights to ownership as represented by an option.

Primary Market

The financial market where new securities are sold to initial buyers directly by the issuer, often through underwriting.

Securities

Instruments of finance that denote a share in a company available on the public stock exchange, an obligation owed to investors by governments or businesses (bonds), or the assignment of ownership via options.

Investment Banks

Financial institutions that provide various services including underwriting, acting as intermediaries in mergers and acquisitions, and facilitating securities trading.