1. The nominal interest rate is8% and the inflation rate is 6%, what is the real rate of interest?

Mathematics

1 answer:

quester [9]2 years ago

8 0

9514 1404 393

Answer:

1.89%
5.06%

Step-by-step explanation:

1. Solving for real interest rate, we find it to be ...

real interest rate = (1 +nominal rate)/(1 +inflation rate) -1

= 1.08/1.06 -1 ≈ 1.89%

2. Solving for nominal interest rate, we find it to be ...

nominal interest rate = (1 +real interest rate)·(1 +inflation rate) -1

= (1.02)(1.03) -1 ≈ 5.06%

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Step-by-step explanation:

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