Question

P 5-33 (similar to)

In​ 1975, interest rates were7.85 % and the rate of inflation was 12.3 %in the United States. What was the real interest rate in​ 1975? How would the purchasing power of your savings have changed over the​ year? ​(Note: Be careful not to round any intermediate steps less than six decimal​ places.)

What was the real interest rate in​ 1975?  

Real rate of interest in 1975 was   ____%. ​(Round to two decimal​ places.)

Answer 1

Real rate of interest in 1975 = (7.85% - 12.3%) / 1.123

Real rate of interest in 1975 = 3.96%