nominal rate of interest The expected inflation rate is 6.6% and the real rate is 5.0%. Including the Fisher effect,...

Question

Question

The expected inflation rate is 6.6% and the real rate is 5.0%. Including the Fisher effect, the nominal rate of interest is _

nominal rate of interest

Answer 1

Answer #1

As per fisher effect equation,

(1+R)	=	(1+r)*(1+i)	Where,
(1+R)	=	(1+0.05)*(1+0.066)	R	=	Nominal rate of return	=	?
(1+R)	=	(1.05)*(1.066)	r	=	Real rate	=	5.00%
(1+R)	=	1.1193	i	=	Inflation rate	=	6.60%
R	=	0.1193

So,

Nominal rate is 11.93%

Answer 2

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