Question

Lillian loaned A.J. $10,000 and increased her purchasing power by $200 when A.J. repaid the loan a year later. Deflation of 2% also occurred that year. What nominal interest rate did Lillian charge A.J.

Answer 1

The nominal interest rate did Lillian charge A.J. is 0%.

What is the interest rate?

• The amount of interest due every period as a percentage of the amount lent, deposited, or borrowed is referred to as the interest rate (called the principal sum).
• The total interest on a lent or borrowed amount is determined by the principal amount, the interest rate, the compounding frequency, and the length of time it is lent deposited, or borrowed.
• The annual interest rate is the rate over a one-year period.
• Other interest rates are applicable over different time periods, such as a month or a day, but they are typically annualized.

As it is purchasing power was increased by $200.

$200 is 2% of $10,000.

Since deflation is 2%.

Therefore, the nominal interest rate did Lillian charge A.J. is 0%.

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