Given an inflation rate of 11% and a combined discount rate of 22%, what is the...

Given an inflation rate of 11% and a combined discount rate of 22%, what is the real (or constant) discount rate?

2.0%

11%

34.2%

10%

Expert Solution

Answer- Correct option is 'b '

Real discount rate is the rate that has been adjusted to remove the effect of inflation to reflect the real cost of funds to the borrower and the real yield to the lender.

Real discount rate = Combined discount rate - Inflation rate

= 22 - 11

= 11

Real discount rate is 11%.

Rahul Sunny answered 2 years ago

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