If a firm wants to borrow $10 million and the real interest rate increases from 5 percent to 6 percent, then the cost of the investment has increased by
A) $1 million per year.
B) $100,000 per year.
C) $6 million per year.
D) $600,000 per year.
E) nothing because the real interest rate is the return the firm will earn on its investment.

Question

Quizplus · Accepted Answer

The increase in the real interest rate from 5% to 6% means an additional 1% cost on the $10 million loan, which is $100,000 per year.

If a Firm Wants to Borrow $10 Million and the Real