If two parties to a loan contract agree that the lender should earn an 8 percent increase in purchasing power as a result of a loan and if the inflation rate is 5 percent,the nominal interest rate is _____.
A)13 percent
B)8 percent
C)5 percent
D)3 percent
E)1 percent

Question

Quizplus · Accepted Answer

Nominal interest rate = Real interest rate + Inflation rate 
Given that the lender should earn an 8 percent increase in purchasing power and the inflation rate is 5 percent, the real interest rate would be 3 percent (8% - 5%). 
Therefore, the nominal interest rate would be 13 percent (3% + 5%).

If Two Parties to a Loan Contract Agree That the Lender