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Grey Worm borrowed $20 from Daenerys and promised to pay her back $25 a year later.

What is the nominal interest rate that Daenerys expects to earn if the rate of inflation is 10%?

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  1. 19 April, 03:14
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    Nominal interest rate is 25%

    Explanation:

    Nominal rate of return = (Original investment am-Future value of investment) / Original investment amount

    Original investment amount is $20

    Future value of investment is $25

    Nominal interest rate = ($25-$20) / $20

    =25%

    This is the rate of return before deducting inflation rate.

    However, the actual return received by the lender is the real rate of interest because 10% of the nominal interest is to compensate the lender for inflation the economy experienced in the year

    Nominal rate=real rate+inflation rate

    real rate=nominal rate-inflation rate

    =25%-10%

    =15%
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