If a lender charge a 9% nominal interest rate and expected inflation rate is a 4%,...
If a lender charge a 9% nominal interest rate and expected inflation rate is a 4%, what is the difference between the real rate the lender received and the real rate the lender expected when the actual inflation ended up being 2%
Homework Answers
Answer - Real interest rate = Nominal interest rate - Inflation
When inflation was 4 perc , real interest rate = 9-4 = 5%
Expected inflation rate when 2 perc , real interest rate = 9-2 = 7 perc.
Difference = 7- 5
= 2perc
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