You want to make a 10% real return on a loan that you are planning to make, and the expected inflation rate during the period of the loan is 4%. You should charge a nominal interest rate of
A) -6%.
B) 6%.
C) 10%.
D) 14%.

Question

Quizplus · Accepted Answer

To calculate the nominal interest rate, we need to add the expected inflation rate to the desired real return rate. Nominal interest rate = real rate + expected inflation rate. Therefore, nominal interest rate = 10% + 4% = 14%. Option D is the correct answer.

You Want to Make a 10% Real Return on a Loan