The nominal rate of interest is 7% and the real rate of interest is 3%. What is the expected inflation rate?

Expert Solution

(1 + Nominal rate of return) = (1 + Real rate of return)(1 + Inflation rate)

(1 + 0.07) = (1 + 0.03)(1 + Inflation rate)

Inflation rate = [(1 + 0.07) / (1 + 0.03)] - 1

Inflation rate = 0.0388 or 3.88%

jeff jeffy answered 2 years ago

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The nominal rate of interest is 7% and the real rate of interest is 3%. What is the expected inflation rate?

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Expert Solution

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