If Inflation Is Anticipated to Be 5 Percent During the Next

question 43

Multiple Choice

If inflation is anticipated to be 5 percent during the next year, while the real rate of interest for a one-year loan is 5 percent, then what should the nominal rate of interest be for a risk-free one-year loan?

• A) 5 percent.
• B) 10 percent.
• C) 25 percent.
• D) None of the above.