Samantha is lending Jack $1,000 for one year.The consumer price index is 160 at the time the loan is made and they expect it to be 168 in one year.If Samantha and Jack agree that Samantha should earn a 3% real return for the year,the nominal interest rate on this loan should be

Question

Quizplus · Accepted Answer

The expected inflation rate is (168-160)/160 = 5%. To achieve a 3% real return, the nominal interest rate should be 3% + 5% = 8%.

Samantha Is Lending Jack $1,000 for One Year