Question

If the stated or nominal interest rate is 10 percent and the inflation rate is 4 percent, the net or differential compounding rate would be _______ percent

a. ten
b. six
c. four
d. fourteen

Answer 1

B) six

Step-by-step explanation:

The net interest rate = nominal interest rate - inflation rate = 10% - 4% = 6%

The net interest rate is simply the nominal interest rate adjusted to inflation (inflation reduces the real value of money), that way you can calculate the real cost of borrowing money or the real return yielded by an investment.