Canada's annual rate of inflation is equal to 1.6% per year, while the annual inflation rate...

Canada's annual rate of inflation is equal to 1.6% per year, while the annual inflation rate for Czech is 2.4% per year. If the nominal short term interest rate in Canada is 1%, while it is 0.25% in Czech. What are the real interest rates in these two countries?

1) 2.6% in Canada, 2.65% in Czech

2) -0.5906% in Canada, -2.0996% in Czech

3) -0.6% in Canada, -2.15% in Czech

4) 2.62% in Canada, 2.66% in Czech

Expert Solution

according to fishers equation

(1+nominal rate)=(1+real rate)(1+inflation)

option 2 is correct (calculation shown in spread sheet)

jeff jeffy answered 1 year ago

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