You want to make a 5% real return on a loan that you are planning to make, and the expected inflation rate during the period of the loan is 6%. You should charge a nominal interest rate of:
A) - 11%.
B) - 1%.
C) 1%.
D) 11%.

Question

Quizplus · Accepted Answer

Real return = nominal interest rate - inflation rate 
5% = nominal interest rate - 6% 
Nominal interest rate = 5% + 6% = 11% 
Therefore, the nominal interest rate should be 11% in order to achieve a 5% real return when the inflation rate is 6%.

You Want to Make a 5% Real Return on a Loan