What is the real interest rate paid on a credit card loan be

What is the real interest rate paid on a credit card loan bearing 18 percent nominal interest per year, if the rate of inflation is a) zero b) 4 percentage

Solution

5.

Real interest rate = Nominal interest rate – Inflation rate

a.

Real interest rate = 18% - 0% = 18%

b.

Real interest rate = 18% - 4% = 14%

c.

Real interest rate = 18% - 8% = 10%

d.

Real interest rate = 18% - 15% = 3%

e.

Real interest rate = 18% - 20% = -2%