Raul borrowed $1,000 from Marta for a year and agreed to repay her $1,050 at the end of the year.If the inflation rate was 3 percent,which of the following is the real rate of interest Marta received?
A)10 percent
B)5 percent
C)3 percent
D)2 percent
E)−2 percent

Question

Quizplus · Accepted Answer

The nominal interest rate is 5% (since Raul repays $1,050 on a $1,000 loan). To find the real interest rate, subtract the inflation rate from the nominal rate: 5% - 3% = 2%.

Raul Borrowed $1,000 from Marta for a Year and Agreed