On January 1, 2008, Edward invested $10,000 at 5% interest for one year. The CPI on...
On January 1, 2008, Edward invested $10,000 at 5% interest for one year. The CPI on January 1, 2008 stood at 1.60. On January 1, 2009, the CPI was 1.76. The real rate of interest earned by Edward was ______ percent. Select one: a. -5 b. 0 c. 5 d. 10 why.
Homework Answers
ANSWER:
Inflation rate = (cpi in 2009 - cpi in 2008) / cpi in 2008 = (1.76 - 1.6) / 1.6 = 0.16 / 1.6 = 0.1 or 10%
nominal rate = 5%
real rate = nominal rate - inflation rate = 5% - 10% = -5%
so the correct answer is option a.
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