If a lender desires to earn a return of 4 percent on a loan and the...

If a lender desires to earn a return of 4 percent on a loan and the anticipated rate of inflation is 3 percent, the lender should charge a

Multiple Choice

Real interest rate of -1 percent.
Nominal interest rate of -7 percent.
Nominal interest rate of 7 percent.
Real interest rate of 1 percent.

Solutions

Expert Solution

option 3

Nominal interest rate =real interest rate + inflation

=4+3

=7%

the nominal interest rate is 7% so the lender should charge 7% to earn 4% in real term while the inflation is 3%

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

If a lender makes a simple loan of $400 for 4 years and charges 5%, then...

If a lender makes a simple loan of $400 for 4 years and charges 5%, then the amount that the lender receive at maturity is $ ?. (Round your response to the nearest two decimal place) If a lender makes a simple loan of $500 for one year and charges $90 interest, then the simple interest rate on that loan is % ?. (Round your response to the nearest whole number) If a borrower must repay $106.50 one year from...

1. You get a $15,000 car loan for 4 years at 6.75% interest. The lender charges...

1. You get a $15,000 car loan for 4 years at 6.75% interest. The lender charges $250 for an origination fee (which is added to your loan amount). What is your APR? 2. You buy furniture for $2,500. You pay $300 down and the retailer finances the remainder with 36 monthly payments of $80. Calculate your APR.

If the maximum loan-to-value ratio that a lender will accept on a $100,000 loan is 90...

If the maximum loan-to-value ratio that a lender will accept on a $100,000 loan is 90 percent, then the borrower must make

A mutual fund manager expects his portfolio to earn a rate of return of 11 percent...

A mutual fund manager expects his portfolio to earn a rate of return of 11 percent this year. The beta of the portfolio is 0.8. If the market risk premium is 10 percent and the risk-free rate is 4 percent, is it a good idea to invest? How could you use a stock index fund (S&P 500 index) and risk-free fund (invested in T-bills) to create a portfolio with the same risk as the manager, but a higher return?

Lender Scenario: You are the loan officer for a commercial lender. You have just received a...

Lender Scenario: You are the loan officer for a commercial lender. You have just received a request from the company you are researching to provide loan funds that will allow the company to buy back 3% of its outstanding common stock. The company has indicated to you that it feels their stock is undervalued at this time. What is your response to their request? What will this do to the company’s various debt and equity ratios? Given the competition, should...

The risk-free rate of return is 4 percent, and the expected return on the market is...

The risk-free rate of return is 4 percent, and the expected return on the market is 8.2 percent. Stock A has a beta coefficient of 1.6, an earnings and dividend growth rate of 6 percent, and a current dividend of $2.20 a share. Do not round intermediate calculations. Round your answers to the nearest cent. What should be the market price of the stock? $ If the current market price of the stock is $32.00, what should you do? The...

The risk-free rate of return is 4 percent, and the expected return on the market is...

The risk-free rate of return is 4 percent, and the expected return on the market is 7.5 percent. Stock A has a beta coefficient of 1.6, an earnings and dividend growth rate of 8 percent, and a current dividend of $2.10 a share. Do not round intermediate calculations. Round your answers to the nearest cent. a) What should be the market price of the stock? b) If the current market price of the stock is $118.00, what should you do?...

The lender offers the following terms on the commercial loan of $1,500,000: the loan amortization period...

The lender offers the following terms on the commercial loan of $1,500,000: the loan amortization period is 30 years, interest rate is 7.5%, the payments are to be made monthly and the loan matures in 5 years. Prepare an annual debt service table, with beginning balance principal, interest, ending balance and total debt service rows for 5 years. Which line item is tax deductible? If the loan origination fees are 1.5% and due upon closing, what is the dollar value...

The T-bill rate is 4 percent and the expected return on the market is 12 percent....

The T-bill rate is 4 percent and the expected return on the market is 12 percent. a. What projects have a higher expected return than the firm’s 12.5 percent cost of capital? b. Which projects should be accepted? Project Beta IRR W 0.80 10.2% X 0.90 11.4% Y 1.10 12.6% Z 1.35 15.1%

Consider a CPM loan in the amount of $150,000 with an interest rate of 4 percent...

Consider a CPM loan in the amount of $150,000 with an interest rate of 4 percent with a 15 year maturity. What will be the monthly payment on the loan? If this loan had a maturity of 25 years, what would be the monthly payment?

Subjects