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hjlf
3 years ago
8

Suppose Compu-Global-Hyper-Mega-Net borrows $100,000 from Mel's Savings and Loan for one year at a 10% interest rate. At the end

of the year; the owner, Mr. Simpson, has to repay $110,000. Of the course of that same year, the average level of prices increases by 10%. What is the real interest rate of the loan?
Business
1 answer:
sleet_krkn [62]3 years ago
7 0

Answer:

<u>The real interest rate of the loan is 0%</u>

Explanation:

1. Let's review the information given to us to answer the question correctly:

Amount of the loan received by  Compu-Global-Hyper-Mega-Net = US$ 100,000

Interest rate of the loan = 10% annually

2. Of the course of that same year, the average level of prices increases by 10%. What is the real interest rate of the loan?

Let's use the formula of the real interest rate:

Real interest rate = Standard interest rate - Inflation or Increase on prices

Real interest rate = 10 -10

<u>Real interest rate = 0%</u>

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