Question

An investor requires a 3 percent increase in purchasing power in order to induce her to lend. She expects inflation to be 2 percent next year. The nominal rate she must charge is about:__________.a) 1 percent.b) 2 percent.c) 3 percent.d) 5 percent.e) 7 percent.

Answer 1

Answer:

Nominal rate = 5%

Explanation:

Given:

Require rate = 3%

Inflation rate = 2%

Find:

Nominal rate = ?

Computation:

⇒ Nominal rate = Require rate + Inflation rate

⇒ Nominal rate = 3% +  2%

⇒ Nominal rate = 5%

Therefore, The nominal rate she must charge is 5%