Suppose that you lend me $100 for a year, and that I agree to pay you $110 at that time (principal plus interest) . Over the intervening year, however, the average price of goods in the economy falls by 4 percent. The real rate of return that you will earn on your loan to me is therefore equal to
A) 4 percent.
B) 6 percent.
C) 10 percent.
D) 14 percent.
E) greater than 14 percent.
Correct Answer:
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