An individual spends $5 daily and also spends an additional $1.50 each time he goes to an ATM. There is also a 12 percent risk of having his cash lost or stolen. If his total cost of holding cash is (547.50/T) + (0.375 ×T), then what is the ongoing nominal interest rate in the economy? Assume that the individual visits the ATM once in every T days.
A. 1 percent.
B. 2 percent.
C. 3 percent.
D. 4 percent.
Answer: C
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