Question

Suppose that you loaned your friend $40 last year and they will repay you $44 this...

Suppose that you loaned your friend $40 last year and they will repay you $44 this year.

If prices are 7% higher this year, what is the real rate of interest you will receive from your loan?

Select one:

a. 4%

b. 7%

c. $4

d. 3%

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Homework Answers

Answer #1

​​​​​​The real rate on interest earned is Calculated at (Nominal rate of interest-Rate of increase in prise)

The nominal rate of interest to be earned is 10% while the rate of increase in price is 7% as given in the question.

So we conclude that real rate of interest earned will be 3%(10%-7%)

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