What would you expect the nominal rate of interest to be if the real rate is...

Question

Question

What would you expect the nominal rate of interest to be if the real rate is 4.2 percent and the expected inflation rate is 7.3 percent?

Answer 1

Answer #1

*Nominal rate of return formula = ((1+ Real rate of return)(1+Inflation rate) ) - 1**
Real rate of return = 4.20%
inflation rate = 7.30%
So Nominal rate of return = ((1+4.2%)*(1+7.3%))-1
(1.042*1.073)-1
11.81%

So Nominal rate of return is 11.81%

Answer 2

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