Author Question: If a financial institution extends a 25 year loan at a 6 percent interest rate, and then the ... (Read 113 times)

fahad · **on:** Jun 29, 2018

If a financial institution extends a 25 year loan at a 6 percent interest rate, and then the inflation rate increases suddenly and unexpectedly to 6 percent per year, the institution receives on its loan a real return of

A) minus 12 percent.
B) zero percent.
C) 6 percent.
D) 12 percent.
E) 36 percent.

Question 2

A savings and loan strives for a 6 real return on its loans and estimates a 7 annual rate of inflation. It should therefore charge its borrowers a nominal interest rate of

A) 13.
B) 7.
C) 6.
D) 1.17.
E) 1.