Carlos borrowed $100 for a year at 5% interest. At the end of the year, he repaid the loan with a payment of $105. The inflation rate that year was 4%. The real rate of interest on his loan was:
A) 9%.
B) 5%.
C) 4%.
D) 1%.

Question

Quizplus · Accepted Answer

The real rate of interest can be calculated using the formula: real interest rate = nominal interest rate - inflation rate. In this case, it's 5% - 4% = 1%.

Carlos Borrowed $100 for a Year at 5% Interest