ANSWER:
Nominal interest rate in atlantis = 10.5%
Inflation rate in atlantis = 5%
real rate of interest = ?
1 + nominal rate = (1 + real rate) * (1 + real interest rate)
1 + 10.5% = (1 + real rate) * (1 + 5%)
1.105 = (1 + real rate) * 1.05
1.105 / 1.05 = 1 + real rate
1.05238095 = 1 + real rate
real rate = 1.05238095 - 1
real rate = 0.05238095
real rate = 5.238095%
so the real rate is 5.2%
In which situation is the real interest rate highest? A) The nominal interest rate is 25% and the inflation rate is 30% B) The nominal interest rate is 2% and the inflation rate is 1% C) The nominal interest rate is 8% and the inflation rate 5% D) The nominal interest rate is 11% and the inflation rate 9% Please provide explanation thanks
The nominal interest rate is the: same as the real interest rate. rate of interest that investors pay to borrow money. rate of inflation minus the real rate of interest. real rate of interest minus the rate of inflation.
The real interest rate A. is equal to the nominal interest rate minus the inflation rate. B. is the interest rate that adjusts GDP for changes in prices. C. is equal to the inflation rate minus the nominal interest rate. D. is the interest rate that is quoted on a financial debt and a firm's assets.
Given the following information, estimate the nominal rate with the approximate nominal interest rate equation and the true nominal interest rate equation for each set of real and inflation rates. Real Rate Inflation Rate Approximate Nominal Rate True Nominal Rate 3.0% 5.0% ? ? 8.08.0% 15.0% ? ? 1.0% 4.0% ? ? 2.5% 3.5% ? ?
The nominal interest can be negative if the inflation rate is greater than the nominal interest rate. can be negative if deflation occurs. can be negative if inflation is unexpected. will never be negative. can be negative when the real interest rate is negative.
U.S. (Nominal Interest Rate) = 4% Canada (Nominal Interest Rate) = 5% According to economic theory, investors will move their funds from U.S. to Canada because they earn a better interest rate, therefore, demand for Canadian $ will increase, so Canadian $ will appreciate, and $ will depreciate. According to the fishier effect, real interest rate is assumed to usually be in equilibrium. So, Nominal Interest Rate = Real Interest Rate + Expected Inflation U.S. 4% = 3% + 1%...
If the inflation rate is zero, then A.) both the nominal interest rate and the real interest rate can fall below zero. B.) the nominal interest rate can fall below zero, but the real interest rate cannot fall below zero. C.) the real interest rate can fall below zero, but the nominal interest rate cannot fall below zero. D.) neither the nominal interest rate nor the real interest rate can fall below zero.
When the real rate of interest is less than the nominal rate of interest, then: A. inflation must be added to the nominal rate. B. investment returns do not increase purchasing power. C. nominal flows should be discounted with real rates. D. inflation is expected to occur.
If the nominal rate of interest is 13.82% and the real rate of interest is 8.03%, what is the expected rate of inflation?
If the nominal rate of interest is 12.65% and the real rate of interest is 8.12%, what is the expected rate of inflation?