Question

Grey Worm borrowed $20 from Daenerys and promised to pay her back $25 a year later.

What is the nominal interest rate that Daenerys expects to earn if the rate of inflation is 10%?

Answer 1

When interest rates increase, the price of a bond decreases. To calculate the exact price of the bond, use the present value formula. In this case, you would be willing to pay approximately $8817.35 for the bond.

Step-by-step explanation:

The question is asking about the relationship between interest rates and the price of a bond. When interest rates increase, the price of a bond decreases, and when interest rates decrease, the price of a bond increases. In this case, since the interest rate has increased from 6% to 9%, you would expect to pay less than $10,000 for the bond.

To calculate the exact amount you would be willing to pay for the bond, you can use the present value formula. The present value (PV) equals the future value (FV) divided by (1 + r)^n, where r is the interest rate and n is the number of years. Plugging in the values, you would be willing to pay approximately $8817.35 for the bond.

Answer 2

Nominal interest rate is 25%

Step-by-step explanation:

Nominal rate of return= (Original investment am−Future value of investment)/Original investment amount

Original investment amount is $20

Future value of investment is $25

Nominal interest rate=($25-$20)/$20

=25%

This is the rate of return before deducting inflation rate.

However, the actual return received by the lender is the real rate of interest because 10% of the nominal interest is to compensate the lender for inflation the economy experienced in the year

Nominal rate=real rate+inflation rate

real rate=nominal rate-inflation rate

=25%-10%

=15%

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