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 ago
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