Suppose that you lend $10,500 to a friend who pays you back $11,340 the next yea

Question

Suppose that you lend $10,500 to a friend who pays you back $11,340 the next year. Assume that prices that year rose by 7% and the real rate of return in the stock market was 3%. Your friend said that she was being more than fair by giving you more than the rate of inflation as a return. Her statement: ______ (3 points) A) was accurate since you would have earned a nominal return of 3% in the stock market, and she paid you a return of 8%. B) was accurate because your nominal return on the loan was 10%. C) was flawed because you could have earned a 12% nominal return in the stock market, and she only paid you a 10% return. D) was flawed since your real return on the loan was less than what you could have earned in the stock market. E) was accurate because your real return on the loan was 1% (or 8% - 7%).

Explanation / Answer

D) was flawed since your real return on the loan was less than what you could have earned in the stock market

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.