If a lender charged a 4 percent nominal interest rate and the expected inflation rate is 1 percent,what is the difference between the real rate the lender received and the real rate the lender expected when actual inflation ended up being 1 percent?
A) 2 percent
B) 4 percent
C) -4 percent
D) 1 percent
E) 0 percent

Question

Quizplus · Accepted Answer

The real interest rate is calculated as the nominal interest rate minus the inflation rate. The expected real rate was 4% - 1% = 3%. The actual real rate was also 4% - 1% = 3%. Therefore, the difference is 0 percent.

If a Lender Charged a 4 Percent Nominal Interest Rate