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4 September, 15:43

Given an anticipated inflation premium of 1.25% and a real rate of interest of 3.75%, what is the nominal interest rate? Round your answer to 4 decimal places. Group of answer choices

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  1. 4 September, 17:09
    0
    n=1.05-1=5%

    Explanation:

    The nominal interest rate for any project/investment is calculated using the following equation:

    1+n = (1+i) (1+r)

    Where

    n = nominal interest rate = to be calculated

    i=inflation rate=1.25% in the given question

    r = real interest rate=3.75% in the given question

    1+n = (1+i) (1+r)

    1+n = (1+1.25%) (1+3.75%)

    1+n=1.05

    n=1.05-1=5%
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