Problem 2-4 (similar to) (Inflation and interest rates) What would you expect the nominal rate of...

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Answer 1

Answer #1

Given real rate (rr) = 3.7 % = 0.037

Inflation rate (ir) = 7.1% = 0.071

Nominal rate of interest (nr) = rr + ir + (rr * ir) = 0.037 + 0.071 + (0.037 * 0.071) = 0.1106

So, Nominal rate of interest = 11.06%

Answer 2

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