Question

The current highest interest rate on a savings account is 1.85%. the current rate of inflation is 1.9%. what is the real dollar return on this account with a $1,020 balance at the end of the year

Answer 1

Answer: 0.51

Explanation:

Nominal rate = 1.85%

Inflation rate = 1.90%

Real rate of return = (1 + nominal rate / 1 +inflation rate) - 1

Real rate of return = ((1 + 0.0185) / (1 + 0.019)) - 1

= (1.0185 / 1.019) - 1

= 0.9995 - 1 = - 0.0005

Therefore, the real dollar return I. $1,020 equals

0.0005 × 1020 = 0.51