Tony lent Dave $1,000 for one year with the understanding that Dave would repay $1,070.If the actual inflation rate was 7 percent,then the real rate of interest Tony received is _____.
A)14 percent
B)7 percent
C)4 percent
D)0 percent
E)−7 percent

Question

Quizplus · Accepted Answer

The nominal interest rate is 7% (since Dave repaid $1,070 on a $1,000 loan). With an inflation rate of 7%, the real interest rate is the nominal rate minus the inflation rate, which is 0%.

Tony Lent Dave $1,000 for One Year with the Understanding