Question

Assume the nominal interest rate on a 15 year fixed mortgage loan is 5%? if the expected inflation rate is 2% the expected real interest rate is _________.

Answer 1

The expected real interest rate of a 15 year fixed mortgage loan with a nominal interest rate of 5% and expected inflation rate of 2% is 3%.

Step-by-step explanation:

The question relates to the calculation of the expected real interest rate from a given nominal interest rate and expected inflation rate for a 15 year fixed mortgage loan. The formula for finding the real interest rate is to subtract the rate of inflation from the nominal interest rate. In this instance, with a nominal interest rate of 5% and an expected inflation rate of 2%, the expected real interest rate is calculated as follows:

Expected Real Interest Rate = Nominal Interest Rate - Inflation Rate

Expected Real Interest Rate = 5% - 2% = 3%

Therefore, the expected real interest rate on the 15 year fixed mortgage with a nominal interest rate of 5% and an expected inflation rate of 2% is 3%.