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 a nominal interest rate of:

Question

Quizplus · Accepted Answer

To calculate the nominal interest rate, we use the formula:
Nominal interest rate = Real interest rate + Inflation rate
Given that Bridget wants an 8% real return (i.e., real interest rate) and the expected inflation rate is 10%, we get:
Nominal interest rate = 8% + 10%
Nominal interest rate = 18%
Therefore, Bridget should charge a nominal interest rate of 18%.

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