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PIT_PIT [208]
3 years ago
8

The true cost of borrowing and lending is best measured by

Business
1 answer:
AnnZ [28]3 years ago
7 0
<span>The true cost of borrowing and lending is best measured by the real interest rate. Real interest rate adjusts the nominal interest rate by inflation. (Real interest=Nominal interest-Inflation)

 Let us consider two instances:
 Instance 1 : Nominal interest rate is 5% and CPI inflation at 2.8%.
 Instance 2 : Nominal interest rate stays at 5% and CPI inflation at 3.5%.

During Instance 2, for an unassuming lender, though it looks like he is not impacted, inflation has taken away some of his purchase power while the interest he earns is the same. Likewise a low inflation rate will have a hidden impact for the borrower and beneficial for the lender.

 Instead, if we take real interest into account, first instance had a real interest rate of 2.2% and the second instance had a real interest rate of 1.5% which explicitly shows the impact of the higher inflation rate and thus reflects the true cost of borrowing/lending.</span>
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What is opportunity cost
RideAnS [48]
<span>the loss of potential gain from other alternatives when one alternative is chosen.</span>
8 0
3 years ago
Read 2 more answers
"A municipality has a tax rate of 18 mills. A piece of real property in the municipality is assessed at $180,000 and has a fair
White raven [17]

Answer:

$3,240

Explanation:

Calculation for the annual tax liability on the property

Using this formula

Annual tax liability= (Tax rate× Real property )

Where= Tax rate =18 million

Real property=180,000

Let plug in the formula

Annual tax liability=( .018x180000)

Annual tax liability=$3,240

Therefore the annual tax liability on the property is $3,240

5 0
3 years ago
Luis refuses to shop at big box stores, preferring to do his shopping locally. He reads in the paper that one of these stores wi
Trava [24]

Answer:

Selective retention.

Explanation:

Selective retention occurs when a person more easily remembers things that are closer to their beliefs, values, and Interests than things that are not.

Luis does not want to do his shopping at big box stores but prefers to shop locally. So when he reads about one of the big box stores (which is not his preference) is doing a big sale next week, he does not remember it because it is not consistent with what he wants. This is an example of selective retention.

7 0
3 years ago
DLW, Inc just started its business. DLW purchased factory equipment for $800,000 on January 1. It is estimated that the equipmen
igor_vitrenko [27]

Answer:

Annual depreciation= $77,000

Explanation:

Giving the following information:

Purchase price= $800,000

Salvage value= $30,000

Useful life= 10 year

Under the straight-line method of depreciation, the depreciation expense is constant along the useful life.

We need to use the following formula:

Annual depreciation= (original cost - salvage value)/estimated life (years)

Annual depreciation= (800,000 - 30,000)/10

Annual depreciation= $77,000

6 0
3 years ago
You are considering a car loan with a stated APR of 5.42​% based on monthly compounding. What is the effective annual rate of th
Anon25 [30]

Answer:

The effective annual rate is 5.57%

Explanation:

The interest rate that is actually earned or paid on investment or loan including the compounding effect over a given period of time. It is also known as rate.

Effective interest rate = [ ( 1 + r/m )^m ] - 1

Effective interest rate = [ ( 1 + 5.42%/12 )^12 ] - 1

Effective interest rate = [ ( 1 + 0.0542/12 )^12 ] - 1

Effective interest rate = 0.055567 x 100

Effective interest rate = 5.5667% = 5.57%

6 0
3 years ago
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