Multiple choice

22. A bank loans $1,000 for one year. Annually, the real rate is 2 percent, the inflation rate is 2 percent, the default rate is 8 percent, and the riskless rate is 4 percent. At the end of the year, what is the amount that the bank expects to be repaid? a $80 b. $1,000 c. $1,040 d. $1,080 e. $1,120 Ans: 23. A bank loans $1,000 for one year. Annually, the real rate is 2 percent, the inflation rate is 2 percent, the default rate is 8 percent, and the riskless rate is 4 percent. What is the rate of return for this loan? a. 2 percent b. 4 percent c. 8 percent d. 12 percent e. 16 percent Ans: 24. A bank loans $1,000 for one year. It will be paid $1,000 plus interest in one year. Annually, the real rate is 2 percent, the inflation rate is 2 percent, the default rate is 8 percent, and the riskless rate is 4 percent. What is the present value of this loan? a $80 b. $1,000 c. $1,040 d. $1,080 e. $1,120 Ans: 25. A bank loans $1,000 for one year. Annually, the real rate is 2 percent, the inflation rate is 2 percent, the default rate is 8 percent, and the riskless rate is 4 percent. If the bank did not consider the possibility of default, what amount of total interest would they earn on this loan? a. $20 b. S40 $120 d. $180 e. $1,120 c. Ans