Suppose the Nominal Interest Rate on a One-Year Car Loan

question 103

Multiple Choice

Suppose the nominal interest rate on a one-year car loan is 8% and the inflation rate is expected to be 3% over the next year.Based on this information, we know:

• A)The ex ante real interest rate is 5%
• B)The lender benefits more than the borrower because of the difference in the nominal versus real interest rates
• C)At the end of the year, the borrower pays only 5% in nominal interest
• D)The ex post real interest rate 11%

---

Definitions:

Necessarily True

A statement or proposition that cannot be false under any circumstances.

Probably True

A statement or belief that is likely to be accurate or correct, based on the available evidence.

Trustworthy Advice

Reliable and credible guidance that can be depended upon for making decisions.

Experienced

Having knowledge or skill in a particular area as a result of direct involvement or participation.