If the current inflation rate is 4% and you have an investment opportunity that pays 10%,then the real rate of interest on your investment is closest to:
A)10.0%.
B)14.0%.
C)6.0%.
D)5.8%.

Question

Quizplus · Accepted Answer

The real rate of interest can be found by subtracting the inflation rate from the nominal rate of interest. Therefore, the real rate of interest in this case is 10% - 4% = 6%. However, to be more precise, we can use the formula: (1 + nominal rate) / (1 + inflation rate) - 1. Plugging in the values: (1 + 0.1) / (1 + 0.04) - 1 = 0.058 or 5.8%. Therefore, the closest option is (D) 5.8%.

If the Current Inflation Rate Is 4% and You Have