Why does the nominal interest rate equal 25% in this problem, instead of 16.4%? My reasoning: The nominal interest rate = the real interest rate + the expected inflation rate. We need to calculate the nominal interest rate. We know the expected inflation rate, so the only problem is to calculate the real interest rate. In order to calculate the real interest rate we need to see how much money received is more than money given. And due to inflation we need to adjust the initial sum to inflation. 110 - 100*1.03=7, this is inflation-adjusted amount of money by which Daenerys will become richer. In order to calculate the real value we need do following: 7/110=0.0(63), which is about 6.4%. Thus the nominal rate equals 6.4+10=16.4

Here is the offical answer, but I'm afraid it doesn't make sense:
Keep in mind that nominal interest rate=Profit/Initial Amount.

The exact relationship that links real interest rate, nominal interest rate and inflation is $(1+R_{nominal})=(1+R_{real})(1+\pi)$ where $\pi$ is the inflation rate (Known as Fisher's identity)

$R_{nominal}=R_{real}+\pi$ is an approximation that works best when those variables are relatively small.