Question

Ramon decided to purchase a new car that cost $38,000. He went to the bank, where he secured a fixed rate loan at 10% for a period of five years. The CPI is rising at a rate of 3% each year. The real rate of interest that Ramon will pay for his car loan in year 2 is:
a. 25%.
b. 13%.
c. 10%.
d. 7%.
e. 3%.

Answer 1

Answer:

The correct answer is D.

Explanation:

Giving the following information:

Ramon decided to purchase a new car that cost $38,000. He went to the bank, where he secured a fixed-rate loan at 10% for a period of five years. The CPI is rising at a rate of 3% each year.

Real interest= interest rate - inflation rate

Real interest= 10 - 3= 7%