If the inflation rate is 10 percent, what is a bank's real rate of return on a loan of $100 at 10 percent interest?
A)$100
B)$10
C)10 percent
D)0 percent

Question

Quizplus · Accepted Answer

The real rate of return adjusts the nominal interest rate (10 percent) for the effect of inflation (also 10 percent). When both rates are equal, the real rate of return is effectively 0 percent, as the purchasing power of the interest earned is entirely eroded by inflation.

If the Inflation Rate Is 10 Percent, What Is a Bank's