Question

If the real interest rate is 7% and the inflation rate is 5%, what is the market interest rate?

A. 12.35%
B. 11.65%
C. 16.63%
D. 13.84%

Answer 1

The market interest rate can be calculated as follows:

Market interest rate = Real interest rate + Inflation rate + (Real interest rate x Inflation rate)

Market interest rate = 7% + 5% + (7% x 5%)

Market interest rate = 12.35%

Therefore, the answer is A. 12.35%.