What interest rate should a banker charge for a loan if she expects that the inflation rate will average about 2.4% over the length of the loan, but wants she a 3% real rate of return?

Question

Quizplus · Accepted Answer

The nominal interest rate can be calculated by adding the expected inflation rate to the desired real rate of return. Thus, the nominal interest rate can be calculated as follows:
Nominal Rate = Real Rate + Inflation Rate
Nominal Rate = 3% + 2.4%
Nominal Rate = 5.4%
Therefore, the banker should charge a nominal interest rate of 5.4%. Answer choice B) is the closest option to this rate.

What Interest Rate Should a Banker Charge for a Loan