Darius lent Alejandro $1,000 for one year with the understanding that Alejandro would repay $1,070. If the actual inflation rate was 7 percent, what was the real rate of interest Darius received?
A)14 percent
B)7 percent
C)4 percent
D)0 percent
E)-7 percent

Question

Quizplus · Accepted Answer

The nominal interest rate was 7 percent (since $1,070 is $1,000 plus 7%). However, with an inflation rate of 7 percent, the real rate of interest is 0 percent because the purchasing power of the money returned is the same as the money lent.

Darius Lent Alejandro $1,000 for One Year with the Understanding