Business, 07.03.2020 04:24 cclappm8697

Saladin is willing to lend her friend Astro $500 to buy a new smart phone. Saladin wants a 3% real rate of return on the loan when it is paid back at the end of the year. She believes that during the year the general level of prices will rise by 2%, so she should charge her friend Astro a nominal interest rate of:.
a. 5%.
b. 4%
c. 3%.
d. 2%.

Answers: 1

Show answers

Answers

Answer from: Afranker8778

a. 5%.

Explanation:

If Saladin is willing to lend her friend Astro $500 to buy a new smart phone. and wants a 3% real rate of return on the loan when it is paid back at the end of the year. If she believes that during the year the general level of prices will rise by 2%, so she should charge her friend Astro a nominal interest rate of 5%.

The reason is that inflation depletes the value of returns received by lenders because of the reduction in the purchasing power of money. The nominal rate in order to return a real rate of is that which has been adjusted for inflation.

Therefore Nominal Rate = Rate of required return 3% + Inflation rate 2% = 5%

Answer from: broyochey1

Nominal interest rate is 5%

Explanation:

Nominal interest rate is the rate of return that is made up of real rate and inflation rate i.e 3%+2%=5%

In charging the nominal interest rate , the lender assumes that other risks that should also be compensated for , do not apply to the transaction at hand.

The other risks that the lender might also want to consider apart from inflation risk are itemized below:

Liquidity risk

Maturity risk

Default risk

Liquidity risk is the potential loss that could arise from forced sale of investment for liquidity preferences- needs for urgent cash.The proceeds derivable from sale such is usually lower than the bond fair value,hence the difference is due to liquidity risk that should be compensated

Maturity risk requires that the investor be paid maturity risk premium to cover for the sensitivity of bond value to changes in interest rates.

Default risk is the risk that the borrower may fail to make available to the lender the contracted cash flow at the contracted time .

Answer from: Quest

ok this has nothing to do with business

Answer from: Quest

9s9

Another question on Business

Business, 22.06.2019 00:00

Pettijohn inc. the balance sheet and income statement shown below are for pettijohn inc. note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over. balance sheet (millions of $) assets 2016 cash and securities $ 1,554.0 accounts receivable 9,660.0 inventories 13,440.0 total current assets $24,654.0 net plant and equipment 17,346.0 total assets $42,000.0 liabilities and equity accounts payable $ 7,980.0 notes payable 5,880.0 accruals 4,620.0 total current liabilities $18,480.0 long-term bonds 10,920.0 total debt $29,400.0 common stock 3,360.0 retained earnings 9,240.0 total common equity $12,600.0 total liabilities and equity $42,000.0 income statement (millions of $) 2016 net sales $58,800.0 operating costs except depr'n $54,978.0 depreciation $ 1,029.0 earnings bef int and taxes (ebit) $ 2,793.0 less interest 1,050.0 earnings before taxes (ebt) $ 1,743.0 taxes $ 610.1 net income $ 1,133.0 other data: shares outstanding (millions) 175.00 common dividends $ 509.83 int rate on notes payable 1. what is the firm's current ratio? (points : 6) 0.97 1.08 1.20 1.33 2. what is the firm's quick ratio? (points : 6) 0.49 0.61 0.73 0.87 3. what is the firm's total assets turnover? (points : 6) 0.90 1.12 1.40 1.68 4. what is the firm's inventory turnover ratio? (points : 6) 4.38 4.59 4.82 5.06 5. what is the firm's debt ratio? (points : 6) 45.93% 51.03% 56.70% 70.00% 6. what is the firm's roa? (points : 6) 2.70% 2.97% 3.26% 3.59% 7. what is the firm's roe? (points : 6) 8.54% 8.99% 9.44% 9.91%

Answers: 2

Answer

Business, 22.06.2019 17:00

Vincent is interested in increasing his earning potential upon completing his internship at a major accounting firm. which option can immediately boost his career in the intended direction? b. complete a certification from a professional organization c. complete a new four-year undergraduate program in a related field d. complete a two-year associate degree in a related field e. complete an online course in accounting

Answers: 3

Answer

Business, 22.06.2019 19:00

20. to add body to a hearty broth, you may use a. onions. b. pasta. c. cheese. d. water.

Answers: 2

Answer

Business, 22.06.2019 19:30

Which of the following constitute the types of unemployment occurring at the natural rate of unemployment? a. frictional and cyclical unemployment.b. structural and frictional unemployment.c. cyclical and structural unemployment.d. frictional, structural, and cyclical unemployment.

Answers: 2

Answer

You know the right answer?

Saladin is willing to lend her friend Astro $500 to buy a new smart phone. Saladin wants a 3% real r...

Questions