Question

What is the rate of inflation if an account has a nominal interest rate of 4.2% and a real interest rate of 2.8%

A. 1%
B. 1.8%
C. 2.4%
D. 1.4%

Answer 1

Rate of inflation = 1.4%

Explanation:

Given:

Nominal interest rate = 4.2%

Real interest rate = 2.8%

Find:

Rate of inflation

Computation:

Rate of inflation = Nominal interest rate - Real interest rate

Rate of inflation = 4.2% - 2.8%

Rate of inflation = 1.4%