SOLUTION :
Borrower pays interest on the money borrowed to the lender. From the point of view of the borrower, lower the inflation adjusted interest rate (real rate) better it is. In that case borrower’s financial cost is lower.
Accordingly , the lowest real rate should be the choice of the borrower .
In this case :
Nominal rate Inflation rate Real rate (Nominal- Inflation)
15% 8% 7%
10% 1% 9%
8% 2% 6%
4% 4% 0%
29% 21% 8%
So,
Nominal rate of 4% and inflation rate of 4% result into the real rate of 0%which is the lowest of all situations and so, this situation is the least burdensome for the borrower. (ANSWER).
Ans is D
Borrower is least burden some when the real interest rate is lowest
and real interest rate=Nominal interest rate-inflation rate
option D has real interest rate=0 because Nominal interest rate=inflation rate
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