Question

Sally has a credit card balance of ​$500 . The credit card company charges a nominal interest rate of 16 percent a year on unpaid balances. The inflation rate is 5 percent a year. Calculate the real interest rate that Sally pays the credit card company.

Answer 1

10.48%

Step-by-step explanation:

Real interest rate = (1 + nominal interest rate) / (1 + inflation rate) - 1

1.16/1.05 - 1 = 10.48

Nominal interest rate is real interest rate plus inflation rate

Real interest rate is interest rate that has been adjusted for inflation