At EOY 20X1, BetaBank offers a one year CD with an APR of 4%, compounded quarterly....
At EOY 20X1, BetaBank offers a one year CD with an APR of 4%, compounded quarterly. Inflation (rinf) is running at 4.0% annually at this time. What is the real rate of return on this CD?
Homework Answers
| effective annual rate on bank CD | (1+r/n)^n -1 r =4% n = 4 | (1+4%/4)^4 -1 | 4.06% |
| inflation rate | 4% | ||
| real rate of return on CD | effective rate of return on CD-inflation rate | 4.06%-4% | 0.06% |
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At EOY 20X1, BetaBank offers a one year CD with an APR of 4%,
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