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You are given the following data: risk free rate 5%, inflation premium 2%, MRP = 0
You are given the following data: risk free rate 5%, inflation premium 2%, MRP = 0.01(t-2) the maturity of loan 3 years.
Find the nominal interest of loan (K)?
Select one:
A. 9%
B. 10%
C. 7%
D. 8%
Expert Solution
The nominal interest rate is computed as shown below:
= Risk free rate + Inflation premium + MRP
= 5% + 2% + 0.01 x (3 - 2)
= 8%
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