Question

5. What is the real rate of interest for an account that offers a 12% nominal rate of return when the rate of inflation is 6% annually

Answer 1

Real interest rate= 0.06 = 6%

Step-by-step explanation:

Giving the following information:

Nominal interest rate= 12%

Inflation rate= 6%

The inflation rate provides the opposite effect on the interest rate. It decreases the purchasing power of an individual. To calculate the real interest rate, we need to deduct the inflation rate.

Real interest rate= 0.12 - 0.06= 0.06