Answer:
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%
