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3 years ago

The true cost of borrowing and lending is best measured by

1 answer:

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>

You might be interested in

State law of diminishing returns

DedPeter [7]

Answer:

see below

Explanation:

The law of diminishing marginal returns indicates that in every production process, adding one more input while holding the others constant will result in the overall decrease in output.

According to this law, adding one more production unit diminishes the marginal returns, and the average production cost increases. Marginal returns refer to the benefits associated with the production of an extra unit.

The gain derived from the use of more input while keeping all other factor constant decreases as production increases. For example, employing more workers while all other variables remain constant will result in reduced labor productivity.

6 0

3 years ago

Rick is a machine operator in a plastic manufacturing company. He believes that if he performs better, he will receive more ince

Gennadij [26K]

Instrumentality.

Since Rick believes that working hard will result in better incentives and his attitude towards these incentives is not known, we can say that in the context of expectancy theory of motivation, that this scenario best reflects the factor of <u>instrumentality</u>.

Vroom's expectancy theory of motivation attempts to explain that people choose to perform certain actions over other in a manner that aims to maximize pleasure and reduce pain to lowest possible extent.

There are three factors that affect motivation : expectancy, instrumentality and valence.

Expectancy : refers to the belief of working harder with the expectation of attaining the goals set within an organization.

Instrumentality : refers to the belief that one will be rewarded if certain goals are met. These rewards may take the form of increased wages, recognition, increased incentives etc.

Valence: refers to the value attached by the worker to the reward that has been attained.

4 0

3 years ago

Under the percentage of completion method, if the actual costs are ____ the estimated costs, the taxpayer must pay interest on t

Sphinxa [80]

Answer:

The correct answer is Less than the estimated costs.

Explanation:

The percentage method completed is an accounting practice used to recognize income in long-term contracts.

When long-term projects (greater than one year) are undertaken, the costs and revenues associated with it are incurred throughout its life.

This accounting method, as its name suggests, allows the company to account for part of the associated income and expenses incurred as the project phases are completed. Thus, the percentage complete method is understood as a method of recognition of recognition of income and expenses that is applied continuously without having to defer income and expenses at the end of the project.

8 0

3 years ago

Ann hires a nanny to watch her two children while she works at a local hospital. She pays the 19-year-old nanny $170 per week fo

aksik [14]

Answer:

Nanny's Portion of Social Security is $442.68

Ann's Portion of Social Security Tax is $442.68

Nanny's Portion of Medicare Tax is $103.53

Ann's Portion of Medicare Tax is $103.53

Explanation:

As explained by the Internal Revenue Service (IRS) under "Topic No. 751 Social Security and Medicare Withholding Rates", the social security tax rate are 6.2 percent for the employer and 6.2 percent for the employee, while the Medicare rate for employee is 1.45 percent and it is also 1.45 percent for the employer. In addition, the wage base limit for 2020 social security tax is $137,700.

Base on the above, we proceed as follows:

Step 2: Calculation total salary of nanny

Total salary of nanny = weekly rate × number of weeks worked

= $170 × 42

= $7,140

Step 2: Calculation of social security tax

Since the nanny's salary is below the wage base limit of $137,700, the tax rates are applied to the actual salary of $7,140 as follows:

Nanny's Portion of Social Security Tax = $7,140 × 6.2% = $442.68

Ann's Portion of Social Security Tax = $7,140 × 6.2% = $442.68

Step 3: Calculation of Medicare tax

Since there is no wage base limit for Medicare tax, the tax rates are applied to the actual salary of $7,140 as follows:

Nanny's Portion of Medicare Tax = $7,140 × 1.45% = $103.53

Ann's Portion of Medicare Tax = $7,140 × 1.45% = $103.53

6 0

4 years ago

A 10-year German government bond (bund) has a face value of €100 and a coupon rate of 5% paid annually. Assume that the interest

cestrela7 [59]

Answer:

€92.64

Explanation:

The present value i.e PV formula is used that is shown in the attached spreadsheet

The NPER reflects the time period.

Given that,

Future value = €100

Rate of interest = 6%

NPER = 10 years

PMT = €100 × 5% = €5

The formula is shown below:

= -PV(Rate;NPER;PMT;FV;type)

So, after solving this, the answer would be €92.64

8 0

3 years ago