Asked by Ryan Matthew McCarthy on May 26, 2024
Verified
If the nominal interest rate is 10% and prices generally increase 5%,the real rate of interest is
A) 5%.
B) 10%.
C) 15%.
D) 20%.
Nominal Interest Rate
The stated rate of interest on a loan or financial investment, not adjusted for inflation.
Real Rate Of Interest
The rate of interest an investor expects to receive after allowing for inflation.
- Understand the impact of inflation on purchasing power and the actual value of currency.
Verified Answer
KE
Kylie EllisMay 26, 2024
Final Answer :
A
Explanation :
To calculate the real rate of interest, we subtract the inflation rate from the nominal interest rate. In this case, 10% - 5% = 5%. Therefore, the real rate of interest is 5%.
Learning Objectives
- Understand the impact of inflation on purchasing power and the actual value of currency.