Question

Last year, Myron purchased a $10,000 certificate of deposit with a 3% rate of interest from his bank. The government reported that prices, on average, have fallen by 5% during the current year. Which of the following can be concluded as a result of this transaction?A. Myron loses, while the bank gains.
B. Myron gains, while the bank remains unaffected.
C. Myron gains, while the bank loses.

Answer 1

Answer:

Option C is the right answer

Explanation:

In this question, we are asked to state what happens in a transaction given some level of information.

Firstly, we need to understand what a certificate of deposit is. A certificate of deposit referred to as CD is a kind of bank product that stipulates that a customer has agreed to leave a certain amount of money in the bank for a particular period of time untouched at an interest rate higher than normal and otherwise tagged as premium.

Now, it must be stated that it was after he was issued that there was a drop in prices. Whatever happens during the drop will not affect him and would be the bank’s concerns simply because his own rate had been predetermined and nothing could change this as he had been issued a contract to that affect.

A drop in price will thus make his initial deposits higher now since there is a drop in price will generally, the bank will bear the brunt of the drop in price hence, losing