If the inflation rate is 10 percent, what is a bank's real rate of return on a loan of $100 at 10 percent interest?

Question

Quizplus · Accepted Answer

The real rate of return is the nominal rate of return minus the inflation rate. In this case, the nominal rate is 10%, but the inflation rate is also 10%, so the real rate of return is 0%. The borrower would essentially be paying back the same amount of money in terms of purchasing power.

If the Inflation Rate Is 10 Percent, What Is a Bank's