Economics

posted by .

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.

Respond to this Question

First Name
School Subject
Your Answer

Similar Questions

  1. Economics

    If the velocity of circulation is constant, real GDP is growing at 3 percent a year, the real interest rate is 2 percent a year, and the nominal interest rate is 7 percent a year. a)What is the inflation rate?
  2. Fin

    Midland Chemical Co is negotiating a loan from Manhattan Bank and Trust. The small chemical company needs to borrow $500,000. The bank offers a rate of 8¼ percent with a 20 percent compensating balance requirement, or as an alternative, …
  3. finance

    The banks offers a rate of 8 1/4 percent with a 20percentcompensating balance requirement, or as an alternative, 9 3/4 percent with additional fees of 5,500 to cover services the bank is providing. In either case the rate on the loan …
  4. Economics

    You read in a newspaper that the nominal interest rate is 12 percent per year in Canada and 8 percent per year in the United States. Suppose that the real interest rates are equalized in the two countries and that purchasing-power …
  5. international economic

    2.) This question uses the general monetary model, in which L is no longer assumed constant and money demand is inversely related to the nominal interest rate. Consider the same scenario described in the beginning of the previous question. …
  6. finance

    A treasury note with a maturity of four years carries a nominal rate of interest of 10%. In contrast, an eight year treasury bond has a yeild of 8%. A. If inflation is expected to average 7% over the first four years,what is the expected …
  7. Finance

    A Treasury note with a maturity of four years carries a nominal rate of interest of 10 percent. In contrast, an eight-year Treasury bond has a yield of 8 percent. a. If inflation is expected to average 7 percent over the first four …
  8. AP Macroeconomics

    3. You buy a certificate of deposit (CD) that pays a nominal rate of 12% annually. You have a tax rate of 25%, so if the interest on this CD is taxable (which it may not be) your after-tax nominal rate is (1 ñ 25%) • 12% = 9%. Since …
  9. econ

    True or false; 1.Lenders gain when inflation is higher than expected. 2. Lenders lose when inflation is higher than expected 3. real interest rates will never go negative 4. loan contracts specify the nominal interest rate. 5. if inflation …
  10. econ

    True or false; 1.Lenders gain when inflation is higher than expected. 2. Lenders lose when inflation is higher than expected 3. real interest rates will never go negative 4. loan contracts specify the nominal interest rate. 5. if inflation …

More Similar Questions