You borrow $10,000 from a bank for one year at a nominal interest rate of 5%. the cpi over that year rises from 180 to 200. what is the real interest rate you are paying?

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Kujo

5 July, 01:06

You borrow $10,000 from a bank for one year at a nominal interest rate of 5%. the cpi over that year rises from 180 to 200. what is the real interest rate you are paying?

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Sharon Macdonald · Answer 1

The cpi rised from by 20. 20 is 11.11% of 180.

180:100=20:x, 180*100=20*x, x=11.11

The cpi raised for 11.11% over the year. The real interest rate is - 6.11%. We get that when we deduct the percentage of cpi from the percentage of nominal interest.