Grey Worm borrowed $20 from Daenerys and promised to pay her back $25 a year later.

What is the nominal interest rate that Daenerys expects to earn if the rate of inflation is 10%?

Nominal interest rate is 25%

Explanation:

Nominal rate of return=  (Original investment am−Future value of investment)/Original investment amount

Original investment amount is $20

Future value of investment is $25

Nominal interest rate=($25-$20)/$20

                                  =25%

This is the rate of return before deducting inflation rate.

However, the actual return received by the lender is the real rate of interest because 10% of the nominal interest is to compensate the lender for inflation the economy experienced in the year

Nominal rate=real rate+inflation rate

real rate=nominal rate-inflation  rate

              =25%-10%

              =15%

keep the tip