Which lending agreement represents the highest real rate of return for a bank when it lends its money to a customer?  A)a nominal interest rate of 11% with 5% inflation B)a nominal interest rate of 19% with 15% inflation C)a nominal interest rate of 8% with 1% inflation D)a nominal interest rate of 12% with 7% inflation

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Asked Feb 22, 2019
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Which lending agreement represents the highest real rate of return for a bank when it lends its money to a customer?

 

 

A)

a nominal interest rate of 11% with 5% inflation

 

B)

a nominal interest rate of 19% with 15% inflation

 

C)

a nominal interest rate of 8% with 1% inflation

 

D)

a nominal interest rate of 12% with 7% inflation

 

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Expert Answer

Step 1

Real rate of return is computed with the help of following formula:

Real ...

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