Which of the following represents the best scenario for a bank lending its money to a customer?

Question

A) fixed interest rate of 8 percent with 1 percent inflation

B) fixed interest rate of 11 percent with 5 percent inflation

C) fixed interest rate of 12 percent with 7 percent inflation

D) fixed interest rate of 19 percent with 15 percent inflation

Answer 1

From the bank's point of view, the answer is A as it has the highest real rate of interest.

Answer 2

D) fixed interest rate of 19 percent with 15 percent inflation

This one has lowest real interest rate 19-15≈+4% or 1.19/1.15≈ +3.48%, thus better represents real-life situation for most countries - though depends on difference between ex-ante and ex-post interest rates (expected/real) and inflation volatility.

But for bank to get maximal profit, thus maximal real interest rate, "A" case is best to achieve (most attractive), because it gives real interest of 8-1≈7% or 1.08/1.01≈+6.93%.