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 the inflation rate is 5 percent,what is the nominal interest rate?
A)13 percent
B)8 percent
C)5 percent
D)3 percent
E)1 percent

Question

Quizplus · Accepted Answer

The nominal interest rate represents the total amount of interest to be paid before taking inflation into account. In this case, the lender wants to earn an 8% increase in purchasing power, which means the nominal interest rate will be 8% plus the inflation rate of 5%. Therefore, the nominal interest rate is 13%.

If Two Parties to a Loan Contract Agree That the Lender