Question

54) In 2007, interest rates were about 4.5% and inflation was about 2.8%. What was the real interest rate in 2007 A) 1.58% B) 1.61% C) 1.62% D) 1.65%

Answer 1

Real interest rate= 1.7%

Step-by-step explanation:

Giving the following information:

In 2007, interest rates were about 4.5% and inflation was about 2.8%.

The real interest rate is the deduction of the inflation rate from the nominal interest rate. It is "real" because you take into account the purchasing power of the investment through time.

Real interest rate= 0.045 - 0.028= 0.017 or 1.7%