If the nominal rate of interest is 14.02% and the real rate of interest is 7.62%,...

If the nominal rate of interest is 14.02% and the real rate of interest is 7.62%, what is the expected rate of inflation?

Expert Solution

(1 + Nominal rate of return) = (1 + Real rate of return)(1 + Inflation rate)

(1 + 0.1402) = (1 + 0.0762)(1 + Inflation rate)

Inflation rate = [(1 + 0.1402) / (1 + 0.0762)] - 1

Inflation rate = 0.0595 or 5.95%

jeff jeffy answered 2 years ago

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