Suppose you borrow $2,000 for one year and at the end of the year you repay the $2,000 plus $110 of interest. If the expected inflation rate was 2.2% at the time you took out the loan, what was the real interest rate you paid?

a. 2.2%

b. 3.3%

c. 5.5%

d. 8.8%

Question

Cunningham

Business

21 February, 00:18

Suppose you borrow $2,000 for one year and at the end of the year you repay the $2,000 plus $110 of interest. If the expected inflation rate was 2.2% at the time you took out the loan, what was the real interest rate you paid?

a. 2.2%

b. 3.3%

c. 5.5%

d. 8.8%

+5

Answers (1)

Know the Answer?

Joyce Conrad · Answer 1

b. 3.3%

Explanation:

The nominal interest rate is 5.5%, (110/2000*100), and the inflation was 2.2%

The shortest way to calculate real interest rate is to subtract the inflation from the nominal interest rate, in this case

5.5% - 2.%2 = 3.3%

Suppose you borrow $2,000 for one year and at the end of the year you repay the $2,000 plus $110 of interest. If the expected inflation rate was 2.2% at the time you took out the loan, what was the real interest rate you paid?a. 2.2%b. 3.3%c. 5.5%d. 8.8%

Suppose you borrow $2,000 for one year and at the end of the year you repay the $2,000 plus $110 of interest. If the expected inflation rate was 2.2% at the time you took out the loan, what was the real interest rate you paid?

a. 2.2%

b. 3.3%

c. 5.5%

d. 8.8%