If a Lender Charged a 4 Percent Nominal Interest Rate

question 37

Multiple Choice

If a lender charged a 4 percent nominal interest rate and the expected inflation rate is 1 percent,what is the difference between the real rate the lender received and the real rate the lender expected when actual inflation ended up being 1 percent?

• A) 2 percent
• B) 4 percent
• C) -4 percent
• D) 1 percent
• E) 0 percent

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Definitions:

Scheduled Payments

Pre-determined payments made at regular intervals, such as monthly or quarterly, often related to loans or leases.

Rate of Return

The increase or decrease in the value of an investment over an allotted time frame, quantified as a percentage of the investment's purchase cost.

Compounded Monthly

Interest that is calculated and added to the principal amount every month, leading to exponential growth of an investment or debt.

Interest Earn

The income received from investing funds or the amount of profit made on an investment over a certain period.