Dick N. buys a house in 1973 and finances it with a mortgage that carries an annual interest rate of 7 per cent. Inflation in 1973 is 3 per cent, inflation in 1974 is 4 per cent, and inflation in 1975 is 5 per cent. What is the real interest rate Dick pays on his mortgage in 1974?
A) 3 per cent
B) 4 per cent
C) 5 per cent
D) 7 per cent
Correct Answer:
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