Question

In: Economics

If a lender desires to earn a return of 4 percent on a loan and the...

If a lender desires to earn a return of 4 percent on a loan and the anticipated rate of inflation is 3 percent, the lender should charge a

Multiple Choice

  • Real interest rate of -1 percent.

  • Nominal interest rate of -7 percent.

  • Nominal interest rate of 7 percent.

  • Real interest rate of 1 percent.

Solutions

Expert Solution

option 3

Nominal interest rate =real interest rate + inflation

=4+3

=7%

the nominal interest rate is 7% so the lender should charge 7% to earn 4% in real term while the inflation is 3%

Rahul Sunny answered 2 years ago
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