The formula to calculate the real interest rate (i) is: i= (if + f)/ (1+f) Question...

Question

Question

The formula to calculate the real interest rate (i) is:

i= (i_f + f)/ (1+f)

Question 3 options:

	True
	False

Answer 1

Answer #1

Answer: False

Reason: the formula for inflated interest rate i_f = i + f + if [ where i= real interest rate, f= inflation rate and

if = (real interest rate * inflation rate)]

thus

i + f + if = i_f

or, i+if = i_f - f

or, i(1+f) = i_f - f

or, i = (i_f - f)/ (1+f)

This formula dose not match with the formula given in the question thus the answer is false.

Answer 2

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