Calculate the real rate of interest if the nominal rate of interest is 9.3% and the inflation rate is 3.25%.
A)7.86%
B)6.86%
C)5.86%
D)4.86%

Question

Quizplus · Accepted Answer

The real rate of interest can be calculated using the formula: Real Rate = Nominal Rate - Inflation Rate. Therefore, Real Rate = 9.3% - 3.25% = 6.05%. However, using the Fisher equation, Real Rate = (1 + Nominal Rate) / (1 + Inflation Rate) - 1, which gives approximately 5.86%.

Calculate the Real Rate of Interest If the Nominal Rate