Lonnie lends Burt $15,000 in 2009. Burt's repaid Lonnie $150 in real interest for the one-year loan. Inflation that year was 1.5 percent. What nominal interest rate did Lonnie charge Burt?

Question

Quizplus · Accepted Answer

The nominal interest rate is the real interest rate plus the inflation rate. The real interest rate is $150/$15,000 = 1%. The inflation rate is 1.5%. Therefore, the nominal interest rate is 1% + 1.5% = 2.5%.

Lonnie Lends Burt $15,000 in 2009