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Inessa05 [86]
3 years ago
15

Becka borrowed $420 from her cousin at the rate of 8% per year. If the inflation rate was 2.5% that year, what is her cousin's a

ctual rate of return on the loan?
Business
1 answer:
sergij07 [2.7K]3 years ago
6 0

Answer:

5.37%

Explanation:

Real rate of return = \frac{1 + NominalRate}{1 + InflationRate} -1

= \frac{1+0.08}{1+0.025} - 1

= 0.053658 or 5.37%

The cousin loaned $420 to Becka

she would expect Becka to pay back 420 x (1 + 5.37%) which is equal to $442.554

The real return on the loan = \frac{442.55-420}{420} × 100 = 5.37%

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