If you pay $10,625 annually on a $125,000 loan and the rate of inflation is 3 percent, then the

Question

Quizplus · Accepted Answer

The $10,625 annual payment represents the nominal interest rate, which is the sum of the real interest rate (unknown) and the rate of inflation (3%). Using the formula for nominal interest rate, we can solve for the real interest rate:

Nominal rate = Real rate + Inflation rate
8.5% = Real rate + 3%
Real rate = 8.5% - 3%
Real rate = 5.5%

Therefore, the nominal rate of interest is 8.5% and the real rate of interest is 5.5%.

If You Pay $10,625 Annually on a $125,000 Loan and the Rate