An investor wants a real rate of return i1 of 6% per year. If the expected...
An investor wants a real rate of return i1 of 6% per
year. If the expected annual inflation rate for the next
several years is 2.5%, what interest rate i should be
used in project analysis calculations?
Use : i= i'+f+(i'*f)
Homework Answers
An investor will use nominal interest rate for an investment analysis
Nominal interest rate=Real interest rate+inflation rate+inflation rate*real interest rate
nominal interest rate=0.06+0.025+0.06(0.025)=0.06+0.025+0.0015=0.08650
Thus nominal interest rate=8.65%
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