You Borrow $10,000 Today at a Nominal Rate of 5%;

question 61

Multiple Choice

You borrow $10,000 today at a nominal rate of 5%; inflation for the past 10 years has been exactly 2%.Today,inflation instantly rises to 7% and stays that way for the duration of your loan.Based on the above information,ceteris paribus (all else equal) ,today:

• A) the real rate of interest on your loan is 14%.
• B) the real rate of interest on your loan was previously 10% and is now 35%.
• C) the real rate of interest on your loan is now -2%.
• D) you will pay the lender back exactly $9,500.
• E) you will pay the lender back exactly $10,700.

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