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

c. Myron gains, while the bank loses.

Step-by-step explanation:

A certificate of deposit (CD) is a product offered by banks and credit unions that provides an interest rate premium in exchange for the customer agreeing to leave a lump-sum deposit untouched for a predetermined period of time.

Therefore, since the period is predetermined and the rate is fixed for that period, any drop in interest rate during the duration of the deposit to the time of maturity will be a loss to the bank.

Hence, The government reported that prices, on average, have fallen by 5% during the current year will be unfavorable to the bank.