Suppose that the nominal rate of interest is 4 percent and the inflation premium is 1...
Suppose that the nominal rate of interest is 4 percent and the inflation premium is 1 percent.
Instructions: Enter your answers as whole numbers.
a. What is the real interest rate?
Alternatively, assume that the real interest rate is 2 percent and the nominal interest rate is 6 percent.
b. What is the inflation premium?
Homework Answers
a. Real interest rate = Nominal interest rate - inflation = 4% - 1% = 3%
b. inflation = Nominal interest rate - real interest rate = 6% - 2% = 4%
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