Question

If Treasury bills are currently paying 5.2 percent and the inflation rate is 2.7 percent, what is the approximate real rate of interest?

Answer 1

2.43 %

Explanation :

Real Interest rate = (1 + nominal rate) / (1 + inflation rate) - 1

therefore,

Real Interest rate = 1.052 / 1.027 - 1

= 2.43 %

the approximate real rate of interest is 2.43 %