Question

Veronica has received a $3,000 gift and is looking for a bank to start a savings account. Which option would be the best for her if the current inflation rate is 2.5%?
A) A bank that offers 4% interest
B) A bank that offers 3% interest
C) A bank that offers 2.5% interest
D) A bank that offers 3.5% interest

Answer 1

Answer:

A

Step-by-step explanation:

You are looking for the highest real interest rate, which is the nominal rate minus the inflation rate. With that being said, the lowest interest rate is 2.5%, which wouldn't make her anything. However, the 4% interest rate yields 1.5% real interest, making it the best option.