Marquis borrowed $1,000 from Ayana for a year and agreed to repay her $1,050 at the end of the year. If the inflation rate was 3 percent, what is the real rate of interest Ayana received?
A)10 percent
B)5 percent
C)3 percent
D)2 percent
E)-2 percent

Question

Quizplus · Accepted Answer

The nominal interest rate is 5% (since $1,050 - $1,000 = $50, which is 5% of $1,000). The real interest rate is calculated by subtracting the inflation rate from the nominal rate: 5% - 3% = 2%.

Marquis Borrowed $1,000 from Ayana for a Year and Agreed