Question

If inflation is anticipated to be 6 percent during the next year, while the real rate of interest for a one-year loan is 5 percent, then what should the nominal rate of interest be for a risk-free one-year loan

Answer 1

11%

Step-by-step explanation:

Nominal interest rate = real interest rate + inflation rate

6% + 5% = 11%

Anticipated Inflation rate is the rate at which it is expected that price levels would rise.

Real interest rate is the rate of interest that has been adjusted for the effects of inflation.

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