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?
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.
