Question

Tim is feeling magnanimous, and decides to loan his mother enough for her to pay off her credit card bills. if tim wants to earn 2.1% and expects inflation to be 5.5%, how much will he charge his mother for the loan?

Answer 1

Answer:

he will charge to mother 7.6% interest

Explanation:

given data

expects inflation = 5.5%

earn =  2.1%

to find out

charge his mother for the loan

solution

we will apply here nominal return formula that is express as

nominal return = inflation rate + real return   .................

put here value and we get

= 5.5% + 2.1%

= 7.6 %

so here he will charge to mother 7.6% interest