Question

If the nominal rate of interest is 4.35 percent and the expected rate of inflation is 1.63 percent, what is the real rate of interest? (Round percentage answer to 3 decimal places, e.g. 52.754%.)

Answer 1

Answer:

Real rate interest = 2.675

Explanation:

given data

nominal rate of interest = 4.35 % = 0.0435

rate of inflation = 1.63 % = 0.0163

to find out

what is the real rate of interest

solution

we get here real rate of interest that is express as

Real rate interest = (1 + nominal rate) ÷ (1 + inflation rate) - 1     ...................1

put here value we get

Real rate interest = $\frac{1+0.0435}{1+0.0163}$ - 1

Real rate interest = 1.026763751 - 1

Real rate interest = 0.026763751

Real rate interest = 2.675