Question

​Inflation, nominal interest​ rates, and real rates. From 1991 to​ 2000, the U.S. economy had an annual inflation rate of around ​%. The historical annual nominal​ risk-free rate for this same period was around ​%. Using the approximate nominal interest rate equation and the true nominal interest rate​ equation, compute the real interest rate for that decade. What is the estimated real interest rate using the approximate nominal interest rate equation for that​ decade?

Answer 1

Answer:

the question is incomplete:

nominal interest rate = 5.07%

real interest rate = ?

inflation rate = 3.45%

approximate real interest rate = 5.07% - 3.45% = 1.62%

real interest rate = [(1 + 5.07%) / (1 + 3.45%)] - 1

real interest rate = (1.0507/1.0345) - 1 = 1.57%