Suppose you lend $1,000 at an interest rate of 10 percent over the next year.If the expected real interest rate at the beginning of the loan contract is 4 percent,then what rate of inflation over the upcoming year would be most beneficial to you as the lender? An inflation rate
A)equal to 0 percent.
B)greater than 6 percent.
C)equal to 6 percent.
D)equal to 4 percent.

Question

Quizplus · Accepted Answer

An inflation rate of 0 percent would be most beneficial to the lender because it would mean that the real interest rate remains at the nominal rate of 10 percent, maximizing the lender's real return.

Suppose You Lend $1,000 at an Interest Rate of 10