Question

Oscar has received a $4,000 gift and is looking for a bank to start a savings account. Which option would be the best for him at a current inflation rate of 1.5%?

Answer 1

Here is the complete question

A nominal interest rate of 5%

A real interest rate of 5%

A real interest rate of 3%

A nominal interest rate of 3%

Answer:

A real interest rate of 5%

Step-by-step explanation:

A real interest rate of 5% is the best option for oscar. The nominal rate of interest is a type of interest rate that shows the increase in in percentage of money without the depreciation discount that is usually caused by inflation or the payment of tax.

The real rate of interest shows the real increase in the money that has been paid for an investment. This is after inflation has been discounted and all forms of taxes have been paid.

So oscar should invest his $4000 on a savings account whose real interest rate is 5% per year