Asked by Wassie rehman on Jun 10, 2024
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You just borrowed $15,000 from a finance company to start a business. If you are required to repay $16,800 interest and principal in one year, what is the nominal interest rate that the finance company is charging? If inflation is 2.5%, what is the expected real rate of interest?
Nominal Interest Rate
The rate of interest before adjustment for inflation, representing the face value of interest payments.
Real Rate of Interest
The interest rate adjusted for inflation, reflecting the true cost of borrowing.
- Absorb the concept of real compared to nominal interest rates and the building blocks of interest rates.
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EC
Learning Objectives
- Absorb the concept of real compared to nominal interest rates and the building blocks of interest rates.