Sindee wants to make an investment that will have a real growth rate of 9%. If the current inflation rate is 1.97%, what annual interest rate will she need to get on her investment to accomplish her goal?
A) 8.50%
B) 7.63%
C) 11.15%
D) 12.82%

Question

Quizplus · Accepted Answer

To achieve a real growth rate of 9% in the presence of a 1.97% inflation rate, Sindee needs to find an investment with a nominal interest rate that accounts for both the desired growth and the inflation. This can be calculated using the formula for the Fisher effect: (1 + nominal rate) = (1 + real rate) * (1 + inflation rate). Plugging in the values, (1 + nominal rate) = (1 + 0.09) * (1 + 0.0197), solving for the nominal rate gives approximately 11.15%.

Sindee Wants to Make an Investment That Will Have a Real