Grose Paterson Bank Ltd is intending to lend money to a client. The loan is to be repaid in a lump sum after 7 years. The bank's required real rate of return is 3% per annum the bank expects the inflation rate in the coming year to be 8% per annum, falling to 5% per annum the year and 4% per annum thereafter. 

What annual interest rate should the bank set?

Answer rating: 100% (QA)

Calculation of the expected nominal interest rate using the Fisher equation Nominal ... View the full answer