Question

Susan put her savings into a mutual fund that paid a nominal interest rate of 3 percent a year at the beginning of 2005. The CPI was 225 at the beginning of the year and 232 at the end of the year. Susan earned a real interest rate of _____ percent a year. Round your answer up to the second decimal. 3 3.11 -0.11 0.11

Answer 1

Answer:

-0.11% a year

Explanation:

Susan's real interest rate is the nominal rate of her investment subtracted by the percentage increase in CPI.

The percentage increase in CPI for 2005 was:

$CPI = \frac{232-225}{225}*100 \% \\CPI= 3.11 \%$

Therefore, Susan's real interest rate (i) was:

$i = 3.00 - 3.11\\i = -0.11 \%$