Question

Jordan loaned Taylor $1,200 on March 15, 2009. Taylor returned $1,260 on March 14, 2010. Inflation was 2% over the 1-year period. What is the real interest rate that Taylor paid

Answer 1

Answer:

3%

Explanation:

The computation of the real interest rate is shown below:

Since the inflation rate is 2% so the rate on loaned amount is  

= $1,200 × 2%

= $24

Now the paid amount is

= $1,260 - $24

= $1,236

So, the remaining amount is

= $1,236 - $1,200

= $36

So, the real interest rate is

= (Remaining amount ÷ loaned amount) × 100

= ($36 ÷ $1,200) × 100

= 3%