The nominal interest rate on a loan with an annual inflation rate of π and a real interest rate i is represented as:
A) i+π÷iπ
B) i+π×iπ
C) i+π+iπ
D) i+π-iπ

Question

The nominal interest rate on a loan with an annual inflation rate of π and a real interest rate i is represented as:
A)  i+π÷iπ
B)  i+π×iπ
C)  i+π+iπ
D)  i+π-iπ

Quizplus · Accepted Answer

The nominal interest rate is represented as the sum of the real interest rate (i) and the inflation rate (π), plus the product of the two (iπ), which is correctly shown in option C as i + π + iπ. This formula accounts for the Fisher equation, which relates nominal interest rates, real interest rates, and inflation.

The Nominal Interest Rate on a Loan with an Annual