contestada

If the nominal interest rate is 5% and the inflation rate is 3%, what is the real interest rate? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Respuesta :

Cricetus

Answer:

The real interest rate is "3%".

Explanation:

Given:

Nominal interest rate,

n = 5%

Inflation rate,

i = 3%

As we know,

⇒ [tex](1+n) = (1+r)\times (1+i)[/tex]

or,

⇒ [tex](1+r)=\frac{(1+n)}{(1+i)}[/tex]

By substituting the values, we get

   [tex](1+r)=\frac{1+0.05}{1+0.03}[/tex]

   [tex](1+r)=\frac{1.05}{1.03}[/tex]

   [tex](1+r)=1.029[/tex]

            [tex]r=1.029-1[/tex]

               [tex]=0.029[/tex]

or,

               [tex]=3[/tex]%    

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