Posted by Seinna on .
The formula given was: (real rate of interest) = (nominal rate of interest) - (expected rate of inflation)
A chartered bank offers a one-year loan at "3 points above prime." Prime is 4 per cent.
a) What is the nominal interest rate?
b)If expected inflation is 3 per cent for next year, what is the real rate of interest?
c) Suppose inflation rises to 4 per cent. What is the real rate of interest?
Can you show me how to do this with all steps included? Pleasee.