With No Inflation, a Bank Would Be Willing to Lend

question 49

Multiple Choice

With no inflation, a bank would be willing to lend a business firm $5 million at an annual interest rate of 6%. But if the rate of inflation was anticipated to be 4%, the bank would most likely charge the firm an annual interest rate of:

• A) 2 percent
• B) 4 percent
• C) 6 percent
• D) 10 percent

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Definitions:

EBITDA

Earnings before interest, taxes, depreciation, and amortization.

Financial Strength

A measure of a company’s ability to meet its financial commitments, indicating its overall financial stability.

International Financial Reporting Standard

A set of accounting standards developed by the International Accounting Standards Board (IASB) that is used globally to prepare public company financial statements.

Negative Net Cash Flow

Negative net cash flow occurs when a company's cash outflows exceed its cash inflows during a given period, indicating more cash is being spent than generated.