Suppose that lenders want to receive a real rate of interest of 5 percent, and that they expect inflation to

remain steady at 2 percent in the coming years. Based on this, lenders should charge a nominal interest rate of:

a. 2 percent.

b. 3 percent.

c. 5 percent.

d. 7 percent.

Question

Business

Madelynn Huffman

29 November, 03:34

Suppose that lenders want to receive a real rate of interest of 5 percent, and that they expect inflation to

remain steady at 2 percent in the coming years. Based on this, lenders should charge a nominal interest rate of:

a. 2 percent.

b. 3 percent.

c. 5 percent.

d. 7 percent.

+3

Answers (1)

Know the Answer?

Neal · Answer 1

The answer is: D) 7 percent

Explanation:

Real interest rates are nominal interest rates discounted by inflation. To calculate them we just simply deduct inflation from nominal interest rate: Nominal interest rates - inflation rate = real interest rate.

For this case the nominal interest rate = real interest rate + inflation rate = 5% + 2% = 7%

Suppose that lenders want to receive a real rate of interest of 5 percent, and that they expect inflation toremain steady at 2 percent in the coming years. Based on this, lenders should charge a nominal interest rate of:a. 2 percent.b. 3 percent.c. 5 percent.d. 7 percent.

Suppose that lenders want to receive a real rate of interest of 5 percent, and that they expect inflation to

remain steady at 2 percent in the coming years. Based on this, lenders should charge a nominal interest rate of:

a. 2 percent.

b. 3 percent.

c. 5 percent.

d. 7 percent.