Nominal Interest Rate (%)

Question

Question

business economics

Answer 1

Answer #1

ANSWER:

Nominal interest rate in atlantis = 10.5%

Inflation rate in atlantis = 5%

real rate of interest = ?

1 + nominal rate = (1 + real rate) * (1 + real interest rate)

1 + 10.5% = (1 + real rate) * (1 + 5%)

1.105 = (1 + real rate) * 1.05

1.105 / 1.05 = 1 + real rate

1.05238095 = 1 + real rate

real rate = 1.05238095 - 1

real rate = 0.05238095

real rate = 5.238095%

so the real rate is 5.2%

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Answer 2

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