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the cpi was 220 in 2012 and 231 in 2013. phil borrowed money in 2012 and...

the cpi was 220 in 2012 and 231 in 2013. phil borrowed money in 2012 and repaid the loan in 2013. if the nominal interest rate on the loan was 10 percent, then the real interest rate was

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Answer #1

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Inflation rate = (CPI 2013 - CPI 2012) / CPI 2012

= (231 - 220) / 220

= 11 / 220

= 0.05 or 5%

Real interest rate = nominal interest rate - inflation rate

= 10% - 5%

= 5%

Hence the real interest rate was 5%

  

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