Question

If the nominal interest rate is 4. 00% and the rate of inflation is 2. 25%, what is the real interest rate? 1. 75% 4. 50% 6. 25% 9. 0%.

Answer 1

Based on the information given the real interest rate is 1.75%.

Using this formula

Real interest rate =Nominal interest rate − Inflation rate

Where:

Nominal interest rate=4.00%

Inflation rate=2.25%

Let plug in the formula

Real interest rate=4.00%-2.25%

Real interest rate=1.75%

Inconclusion the real interest rate is 1.75%.

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