A variable-rate mortgage?

Deal Score0

1. eliminates the risk of expected inflation.

2. increases the efficiency of the economy.

3.is offered at an interest rate that increases with inflation.

4.is a fixed interest rate on a particular loan, but that fixed rate varies depending on the length of the loan.

5. shifts the risk of unexpected inflation form the borrower to the lender.

1 Comment
  1. Reply
    Homer J. Simpson
    April 29, 2011 at 11:42 pm

    3

    The variable rate transfers risk from lender to borrower so, 1 & 5 are false.

    4 is just stupid.

    Since the observed nominal interest rate at any time = real rate + inflation rate, 3 is true.

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