Suppose the Nominal Interest Rate on a One-Year Car Loan

Multiple Choice

Suppose the nominal interest rate on a one-year car loan is 8% and the inflation rate is expected to be 3% over the next year. Based on this information, we know:

A) the ex ante real interest rate is 5%.
B) the lender benefits more than the borrower because of the difference in the nominal versus real interest rates.
C) at the end of the year, the borrower pays only 5% in nominal interest.
D) the ex post real interest rate 11%.