What is the amount of nominal interest that will compensate a lender for the expected loss of purchasing power accompanying any inflation?

Question

Quizplus · Accepted Answer

The amount of nominal interest that will compensate a lender for the expected loss of purchasing power accompanying any inflation is known as the inflation premium. It is intended to account for the expected inflation rate during the life of the loan and prevent the lender from losing money due to inflation eroding the value of the money lent. The risk premium is the compensation for the potential default risk of the borrower, the discount rate is the interest rate used to calculate the present value of future cash flows, and the federal funds rate is the interest rate at which banks lend and borrow from each other.

What Is the Amount of Nominal Interest That Will Compensate