What is the process where a business takes raw materials and processes them or converts them into a finished product for its goo
1 answer:
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Answer:
Real Interest Rate = -2.7%
Explanation:
The formula to calculate the Real Interest rate is:
Here,
r = Real Interest Rate
i = Nominal Interest Rate = 3% = 0.03
p = Rate of Inflation
We have the value of Nominal Interest Rate. Before using the formula we need to calculate the Rate of Inflation. We have the values of CPI at the beginning and end of the year. From these we can calculate the Inflation Rate. The formula to calculate the inflation rate is:
Using the values in this formula, we get:
Now we have all the values that we need to use. The values in the formula will be used in decimals, not in percentages. Substituting the values, we get:
Thus, the Real Interest Rate that Juanita earned is -2.7%. This shows that rate of Inflation is more than the Nominal Interest and the value of her savings actually decreased compared to the beginning of the year.