Gce Model Questions Vol1 2018 Economics Question 50

Practice objective / multiple choice question 50 from the 2018 Gce Model Questions Vol1 Economics examination.

Gce Model Questions Vol1 2018 Economics Objective / Multiple Choice Medium Difficulty
Question 50 GCE_MODEL_QUESTIONS_VOL1 • 2018 • ECONOMICS • objective

Two loan options are offered to a borrower. Option A carries a nominal interest rate of 12% per annum and expected inflation of 5% per annum. Option B carries a nominal interest rate of 9% per annum and expected inflation of 2% per annum. Using the Fisher equation, calculate the real interest rate for each option and indicate which option provides the higher real return to the lender.

Answer Options

A. Option A real rate ≈ 6.67%; Option B real rate ≈ 6.76%; Option A provides the higher real return.
B. Option A real rate ≈ 5.50%; Option B real rate ≈ 6.00%; Option B provides the higher real return.
C. Option A real rate ≈ 7.00%; Option B real rate ≈ 6.86%; Option A provides the higher real return.
Correct Answer D. Option A real rate ≈ 6.67%; Option B real rate ≈ 6.76%; Option B provides the higher real return.
Correct Answer
D
Correct Option:
Option A real rate ≈ 6.67%; Option B real rate ≈ 6.76%; Option B provides the higher real return.

About This Question

This is Gce Model Questions Vol1 2018 Economics Question 50. It is one of the objective questions from the 2018 Gce Model Questions Vol1 Economics examination.

Difficulty level: Medium .

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