Question

Suppose you borrow​ $2,000 for one year and at the end of the year you repay the​ $2,000 plus​ $110 of interest. If the expected inflation rate was​ 2.2% at the time you took out the​ loan, what was the real interest rate you​ paid?

a. 2.2%
b. 3.3%
c. 5.5%
d. 8.8%

Answer 1

b. 3.3%

Step-by-step explanation:

The nominal interest rate is 5.5%, (110/2000*100), and the inflation was 2.2%

The shortest way to calculate real interest rate is to subtract the inflation from the nominal interest rate, in this case

5.5% - 2.%2 = 3.3%