Careetha has just taken a fixed-rate loan and agreed to pay a nominal interest rate of 6 percent.If the inflation rate during the first year of the loan was 2 percent,her real interest rate that first year was
A) 6 percent
B) 8 percent
C) 4 percent
D) 12 percent
E) impossible to calculate without additional information

Question

Quizplus · Accepted Answer

The real interest rate is calculated by subtracting the inflation rate from the nominal interest rate. Therefore, Careetha's real interest rate during the first year of the loan was:
Real interest rate = Nominal interest rate - Inflation rate
Real interest rate = 6% - 2%
Real interest rate = 4%

Careetha Has Just Taken a Fixed-Rate Loan and Agreed to Pay