Question
In: Finance
if the current inflation rate is 2.0% then the nominal rate necessary for you to earn...
if
the current inflation rate is 2.0% then the nominal rate necessary
for you to earn a 5.3% real interest rate on the investment is
closest to
8.9% 10.23% 15.11% 7.41% 9.41%
The
answer choices are at the bottom
Solutions
Expert Solution
According to the Fisher Equation
Nominal Interest rate = [(1+Inflation rate)* (1+Real Interest rate)] -1
= [(1+2%)*(1+5.3%)] -1
= (1.02)*(1.053) -1
= 1.07406 -1
= 0.07406 or 7.41%[Rounded to two decimals]
So, Nominal Interest rate = 7.41%
jeff jeffy answered 2 years agoRelated Solutions
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Subject: Finance
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Could you explain the relationship among the real interest rate,
nominal interest rate, and inflation rate? How can we get the
approximate value of the real interest rate (show the formula)?
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