Imagine that you borrow $1,000 for one year and at the end of the year you repay the $1,000 plus $100 of interest.If the inflation rate was 7%, what was the real interest rate you paid?
A)17 percent
B)10 percent
C)7 percent
D)3 percent
E)1.5 percent

Question

Quizplus · Accepted Answer

To find the real interest rate, we need to adjust the nominal interest rate (in this case, 10%) for inflation. 
Real interest rate = Nominal interest rate - Inflation rate
Real interest rate = 10% - 7% 
Real interest rate = 3% 
Therefore, the real interest rate paid was 3%. So, the correct answer is option D

Imagine That You Borrow $1,000 for One Year and at the End