If the current inflation rate is 5%,then the nominal rate necessary for you to earn an 8% real interest rate on your investment is closest to:
A)13.0%
B)13.4%
C)4.9%
D)3.0%
E)8.0%

Question

Quizplus · Accepted Answer

The formula for calculating real interest rate is:
Real Interest Rate = Nominal Interest Rate - Inflation Rate

We need to earn a real interest rate of 8%, and the inflation rate is 5%. Therefore,
8% = Nominal Interest Rate - 5%
Nominal Interest Rate = 8% + 5%
Nominal Interest Rate = 13%

So, the nominal rate necessary for us to earn an 8% real interest rate on our investment is 13%. The closest answer is B) 13.4%.

If the Current Inflation Rate Is 5%,then the Nominal Rate