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

Question

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The lender should charge a nominal interest rate of 7 percent, which is the sum of the desired real interest rate of 1 percent and the anticipated inflation rate of 3 percent added to that. This will ensure that the lender's earning will not be eroded by inflation and will earn 4 percent real return.

If a Lender Desires to Earn a Return of 4