Suppose the Nominal Annual Interest Rate on a Two-Year Loan

question 246

Multiple Choice

Suppose the nominal annual interest rate on a two-year loan is 8 percent and lenders expect inflation to be 5 percent in each of the two years.The annual real rate of interest is

• A)6 percent.
• B)8 percent.
• C)2 percent.
• D)3 percent.

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