Question

Kaitlin has $10,000 of savings that she may deposit with her local bank. Kaitlin wants to earn a real rate of return of at least 4 percent and she is expecting inflation to be exactly 3 percent. What is the lowest nominal interest rate that Kaitlin would be willing to accept from her local bank A. 4 percent B. 5 percent C. 6 percent D. 7 percent

Answer 1

Answer:

(D) 7 percent

Explanation:

Nominal interest rate is approximately equal to real interest rate + inflation rate

= 4% + 3%

= 7%.

Thus, the minimum nominal interest rate that Kaitlin would be willing to accept from her local bank is 7%.