Spencer took a 9 percent one-year fixed-rate loan to buy a new car. he expected to pay a real interest rate of 5 percent. if at the end of the year spencer only paid a 3 percent real interest rate, which of the following is true?

General
1

spencer took a 9 percent one-year fixed-rate loan to buy a new car. he expected to pay a real interest rate of 5 percent. if at the end of the year spencer only paid a 3 percent real interest rate, which of the following is true?

2

Based on the given information, Spencer initially took a 9 percent one-year fixed-rate loan, with an expectation to pay a real interest rate of 5 percent. However, at the end of the year, Spencer only paid a 3 percent real interest rate.

To determine which statement is true, we need to compare the expected real interest rate with the actual real interest rate paid by Spencer:

  1. If the expected real interest rate is higher than the actual real interest rate, it means Spencer benefited from a lower interest rate than he anticipated. Therefore, the statement “Spencer paid a lower real interest rate than expected” would be true.

  2. If the expected real interest rate is lower than the actual real interest rate, it means Spencer ended up paying a higher interest rate than he expected. Therefore, the statement “Spencer paid a higher real interest rate than expected” would be true.

In this case, since Spencer only paid a 3 percent real interest rate compared to the expected rate of 5 percent, it means he paid a lower real interest rate than he initially anticipated. Thus, the statement “Spencer paid a lower real interest rate than expected” is true.