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23 October, 00:10

Consider an individual who borrowed $$25,000 to purchase a used car at a fixed interest rate of 9%. If inflation is 9%, what is the real interest rate the individual will be paying

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  1. 23 October, 00:28
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    The real interest rate is 0%

    Explanation:

    To calculate the real interest rate, we can use the following formula:

    Real Interest Rate = [ (1+nominal interest rate) / (1-+inflation rate) ]-1

    Now, we plug the amounts into the formula:

    Real Interest Rate = [ (1+0.09) / (1+0.09) ]-1

    =[1.09/1.09]-1

    =1-1

    =0

    Thus, the Real Interst Rate is equal to 0%
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