Question

If the inflation rate was 2.40% and the nominal interest rate was 7.20% over the last year, what was the real rate of interest over the last year? Disregard cross-product terms; that is, if averaging is required, use the arithmetic average. Round intermediate calculations to four decimal places.

Answer 1

Answer:

the real rate of interest is 4.80%

Explanation:

The computation of the real rate of interest is shown below:

Real rate of interest is

= Nominal rate of interest - inflation rate

= 7.20% - 2.40%

= 4.80%

It is the difference between the nominal rate of interest and the inflation rate and the same is to be considered

hence, the real rate of interest is 4.80%