Interest and CPI question?

Suppose I want to borrow money from the bank for one year, but only if the real interest rate is 6 percent or less. The bank quotes me a nominal interest rate of 10 percent. The CPI is currently 185, and economists forecast that next year the CPI will be 190. Assuming that I agree with the economists%26#039; forecasts, should I take the loan? Justify your answer.

I%26#039;ve tried to figure this out on my own, but I just think that I can%26#039;t grasp the concept?

Interest and CPI question?credit counseling

Ouch, please tell me you%26#039;re still in grade school and haven%26#039;t got to percents yet.

Interest and CPI question? loan

Kate, you should first find the inflation rate:

190/185-1=0.027=2.7%

Then, you should discount the nominal interest rate of 10% (.1)with the inflation rate:

(1+.1)/(1+.027)=1.071

So the real interest rate is 1.071-1=.071=7.1%

You shouldn%26#039;t take the loan!