Question

Matt deposits $4,000 in a savings account at 2% interest. What is his real interest rate if the current inflation rate is 1.5%?

1%
3.5%
3%
0.5%

Answer 1

0.5%

Step-by-step explanation:

The real rate of interest considers the prevailing inflation rate. It is the nominal or quoted interest rate adjusted for inflation.

The real interest rate is determined by subtracting the inflation rate from the nominal rate.

In this case, the inflation rate is 1.5%, and the nominal or quoted rate is 2%.

The real rate = 2% - 1.5%

=0.5%