Tony lent Dave $1,000 for one year with the understanding that Dave would repay $1,070.If the actual inflation rate was 7 percent,what was the real rate of interest Tony 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 percent interest). With an inflation rate of 7 percent, the real interest rate is the nominal rate minus the inflation rate, which is 0 percent.

Tony Lent Dave $1,000 for One Year with the Understanding