Question

Jordan loaned taylor $1,200 on march 15, 2009. taylor returned $1,260 on march 14, 2010. inflation was 2% over the 1-year period. what is the real interest rate that taylor paid?

a.2%
b.3%
c.5%
d.7%

Answer 1

To calculate the real interest rate that Taylor paid, I would take the $1200 and see what 2% of that is for the year and it comes to $24. So take the $1260 he paid - $24=$1236 and 36/1200= 0.03 or 3%. So I believe that this 3% is the real rate that Taylor paid for interest on the $1200.