Question

Sally has a credit card balance of ​$10,000. The credit card company charges a nominal interest rate of 17 percent a year on unpaid balances. The inflation rate is 9 percent a year. Calculate the real interest rate that Sally pays the credit card company. The real interest rate that Sally pays the credit card company is _______ percent a year.

Answer 1

To calculate the real interest rate we just need to remember the formula:
real interest rate=(nominal rate - inflation)/(1 + inflation)

Here:
$i=\frac{.17-.09}{1+.09}$