If the rate of inflation is 45%, what nominal interest rate is necessary for you to...

Question

Question

Answer 1

Answer #1

Inflation rate	4.50%
Real Interest rate required	3.90%

With inflation, the value of original investment and interest earned over it gets depreciated. So to earn a 3.9% real return,
the nominal interest rate should be much higher so that it can accommodate the inflation deterioration.

(1+Real rate of return)=	(1+Nominal rate of return)/(1+Inflation rate)
(1+3.9%)=	(1+Nominal rate of return)/(1+4.5%)
(1+Nominal rate of return)=	(1+3.90%)*(1+4.5%)
(1+Nominal rate of return)=	1.085755
Nominal rate=	0.085755
Nominal rate=	8.58%

Answer 2

Similar Homework Help Questions

If the rate of inflation is 5.7 %, what nominal interest rate is necessary for you...

If the rate of inflation is 5.7 %, what nominal interest rate is necessary for you to earn a 2.2 % real interest rate on your investment? (Note: Be careful not to round any intermediate steps less than six decimal places.) The nominal interest rate is ____%. (Round to two decimal places.)
If the rate of inflation is 5%, what nominal interest rate is necessary for you to...

If the rate of inflation is 5%, what nominal interest rate is necessary for you to earn a 3% real interest rate on your investment? The nominal interest rate is %. (Round to two decimal places.)
Assume the inflation rate is 3.78% APR, compounded annually. Would you rather earn a nominal return...

Assume the inflation rate is 3.78% APR, compounded annually. Would you rather earn a nominal return of 5.03% APR, compounded semiannually, or a real return of 2.25% APR, compounded quarterly? (Note: Be careful not to round any intermediate steps less than six decimal places.) To put these on the same basis, you must convert them both to nominal EARS The EAR for 5.03% APR, compounded semiannually is (Type your answer in decimal format. Round to six decimal places.) The nominal...

Assume the inflation rate is 2.15 % APR, compounded annually. Would you rather earn a nominal...

Assume the inflation rate is 2.15 % APR, compounded annually. Would you rather earn a nominal return of 4.65 %APR, compounded semiannually, or a real return of 2.55 %APR, compounded quarterly? (Note: Be careful not to round any intermediate steps less than six decimal places.) To put these on the same basis, you must convert them both to nominal EARs The EAR for4.65 % APR, compounded semiannually is ____.
15. Assume inflation is 0.24% per month. Would you rather earn a nominal return of 0.75%...

15. Assume inflation is 0.24% per month. Would you rather earn a nominal return of 0.75% per month, compounded monthly, or a real return of 6.42% APR, compounded annually? (Note: Be careful not to round any intermediate steps less than six decimal places.)
P 5-33 (similar to) In 1975, interest rates were7.85 % and the rate of inflation was...

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.)

14. In 1975, interest rates were 7.85% and the rate of inflation was 12.3% in the...

14. In 1975, interest rates were 7.85% 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.)
If the rate of inflation is 4.4%, what nominal interest rate is necessary for you to earn a 3.9% real interest rate on your investment?

If the rate of inflation is 4.4%, what nominal interest rate is necessary for you to earn a 3.9% real interest rate on your investment?
If the nominal interest rate is 7% and the inflation rate is 2%, what is the...

If the nominal interest rate is 7% and the inflation rate is 2%, what is the real interest rate? (Do not round intermediate calculati Round your answer to 2 decimal places.) Real interest rate Next > Prey 2 of 15

If the nominal interest rate is 10% and the inflation rate is 5%. What is the...

If the nominal interest rate is 10% and the inflation rate is 5%. What is the real interest rate? (Do not round intermediate calculations. Round your answer to 2 decimal places) 4.76 5.13 2.34 5.00 0.4 Question 2 FinanceCorp has fixed costs of $12 million and profits of $4 million. What is its degree of operating leverage (DOL? (Do not round intermediate calculations. Round your answer to 2 decimal places) 2.50 3.30 4.00 1.00