Homework Answers
Nominal Interest Rate = 7.85%
Inflation Rate = 12.30%
Real Interest Rate = (Nominal Interest Rate - Inflation Rate) /
(1 + Inflation Rate)
Real Interest Rate = (0.0785 - 0.1230) / (1 + 0.1230)
Real Interest Rate = -0.0445 / 1.1230
Real Interest Rate = -0.0396 or -3.96%
The real rate of interest is -3.96%
The purchasing power of your savings declined by 3.96% over the year.
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