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52. An investor desires to earn a real interest rate of 6%. If the expected rate...

52. An investor desires to earn a real interest rate of 6%. If the expected rate of inflation is 5%, what nominal rate of interest would the investor set on a loan if all risk premiums are zero?
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Answer #1

Desired real interest rate = 6 %

Inflation rate = 5 %

Nominal rate = real rate + inflation rate

                         = 6 % + 5 %                       

                         = 11%

Nominal rate of interest should be set as 11 %

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