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Explain the nominal interest rate

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Reference no: EM13197946

The formula given was: (real rate of interest) = (nominal rate of interest) - (expected rate of inflation) 

A chartered bank offers a one-year loan at "3 points above prime." Prime is 4 per cent. 

a) What is the nominal interest rate? 


b)If expected inflation is 3 per cent for next year, what is the real rate of interest? 


c) Suppose inflation rises to 4 per cent. What is the real rate of interest? 


Reference no: EM13197946

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