An investor loaned money at 14 percent with an expected rate of inflation of 11 percent. During the year the actual rate of inflation was 8 percent. The investor's expected real rate of interest was _____ and the realized real rate for the investor was ______?
A) 14 percent; 8 percent.
B) 6 percent; 3 percent.
C) 3 percent; 3 percent.
D) 3 percent; 6 percent.

Question

Quizplus · Accepted Answer

The expected real rate of interest is calculated as the nominal rate minus the expected inflation rate: 14% - 11% = 3%. The realized real rate is the nominal rate minus the actual inflation rate: 14% - 8% = 6%.

An Investor Loaned Money at 14 Percent with an Expected