What is the nominal rate of interest given a real rate of interest of 5% and an inflation rate of 7%?
A) 12.00%
B) 2.00%
C) 12.35%
D) 1.90%

Question

Quizplus · Accepted Answer

The nominal rate of interest can be calculated using the Fisher equation, which is (1 + nominal rate) = (1 + real rate) * (1 + inflation rate). Plugging in the given values, (1 + nominal rate) = (1 + 0.05) * (1 + 0.07) = 1.1235, which means the nominal rate is 12.35%.

What Is the Nominal Rate of Interest Given a Real