Bridget wants to make an 8% real return on a loan that she is planning to make, and the expected inflation rate during the period of the loan is 10%. She should charge an interest rate of:
A) 18%.
B) - 2%.
C) 8%.
D) 2%.

Question

Quizplus · Accepted Answer

To calculate the nominal interest rate that Bridget should charge, we add the inflation rate to the real interest rate:
Nominal interest rate = real interest rate + inflation rate
Nominal interest rate = 8% + 10%
Nominal interest rate = 18%
Therefore, Bridget should charge an interest rate of 18%.

Bridget Wants to Make an 8% Real Return on a Loan