Raul borrowed $1,000 from Marta for a year and agreed to repay her $1,050 at the end of the year.If the inflation rate was 3 percent, what is the real rate of interest Marta received?

Question

Quizplus · Accepted Answer

To calculate the real rate of interest, we need to adjust the nominal interest rate for inflation. In this case, the nominal interest rate is ($1,050 - $1,000)/$1,000 = 5%. However, we need to adjust for inflation at 3%, which gives us a real interest rate of 5% - 3% = 2%. Therefore, the answer is D.

Raul Borrowed $1,000 from Marta for a Year and Agreed