A bank lends money for a year at an interest rate of 7 percent, and the inflation rate for that year turns out to be 5 percent. What is the bank's real rate of return for that year?

Name: A bank lends money for a year at an interest rate of 7 percent, and the inflation rate for that year turns out to be 5 percent. What is the bank's real rate of return for that year?
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Question

Quizplus · Accepted Answer

The real rate of return is calculated by subtracting the inflation rate from the nominal interest rate. Here, 7% - 5% = 2%.

A Bank Lends Money for a Year at an Interest