For a particular year the inflation rate was 2.71%, what was the real interest rate of...

Question

Question

For a particular year the inflation rate was 2.71%, what was the real interest rate of return on a CD that payed 6.76% for th

business economics

Answer 1

Answer #1

Answer
By Fisher's approximation formula:

real interest rate =return on a CD -inflation

=6.76-2.71

=4.05

the real interest rate is 4.05%

by Fisher's exact formula
real interest rate =(rate of return -inflation)/(1+inflation)
=(0.0676-0.0271)/(1+0.0271)
=0.0394314088

=3.94%
the real interest rate is

Answer 2

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