FIN435 Tutorial Topic 2: Interest Rate

Ben is considering a loan for a new car. What is the primary factor he needs to evaluate regarding the loan?

• The car's color

• The interest rate

• The dealership's location

• The car's make and model

If Ben is offered a nominal interest rate of 5%, what does this rate represent?

• The rate adjusted for inflation

• The actual percentage charged on the loan

• The fee charged for the loan

• The minimum payment required

In the video (minute 0:16), Ben learns that higher interest rates usually mean:

• Lower monthly payments

• More affordable loans

• Increased cost of borrowing

• Increased savings on deposits

If Ben takes a loan with a fixed interest rate, what does this imply about his payments?

• They can change over time

• They will decrease as he pays off the loan

• They are only due at the end of the loan

• They will remain the same throughout the loan term

When evaluating his financial options, what should Ben consider about inflation?

• Inflation will not affect him

• Inflation reduces the value of money over time

• Inflation makes loans cheaper

• Inflation guarantees fixed interest rates

If Ben's loan has an interest rate of 6% and inflation is 2%, what is the real interest rate he is paying?

• 4%

• 8%

• 2%

• 0%

As Ben looks at potential loan offers, what impact do lower interest rates have on his purchasing power?

• They decrease his purchasing power

• They have no effect

• They increase his purchasing power

• They only affect savings accounts

What type of interest rate is being adjusted for inflation?

• Nominal interest rate

• Real interest rate

• Fixed interest rate

• Floating interest rate

What is the impact of low interest rates on savings accounts as mentioned in the video?

• Higher returns for savers

• Reduced inflation

• Lower returns for savers

• Increased savings rates

What happens when interest rates are lowered by the central bank?

• It encourages saving

• It discourages borrowing

• It encourages borrowing and spending

• It raises inflation