You borrow $10,000 from a bank for one year at a nominal interest rate of 5%.If inflation over the year is 2%, what is the real interest rate you are paying?
A)2%
B)2.5%
C)3%
D)5%
E)7%

Question

Quizplus · Accepted Answer

The real interest rate can be calculated using the formula: real interest rate = nominal interest rate - inflation rate. Therefore, the real interest rate is 5% - 2% = 3%.

You Borrow $10,000 from a Bank for One Year at a Nominal