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In: Finance

If the nominal rate of interest is 13.02% and the real rate of interest is 8.01%, what is the expected rate of inflation?

If the nominal rate of interest is 13.02% and the real rate of interest is 8.01%, what is the expected rate of inflation?

Solutions

Expert Solution

Based on Fischer Relation,

(1 + Nominal rate) = (1 + Real Rate) * (1 + Inflation)

(1 + 13.02%) = (1 + 8.01%) * (1 + Inflation)

1 + Inflation = 1.1302/1.0801

1 + Inflation = 1.0464

Inflation = 0.0464 = 4.64%

jeff jeffy answered 2 years ago
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