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27 May, 07:17

The current highest interest rate on a savings account is 1.85%. the current rate of inflation is 1.9%. what is the real dollar return on this account with a $1,020 balance at the end of the year

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  1. 27 May, 11:01
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    Answer: 0.51

    Explanation:

    Nominal rate = 1.85%

    Inflation rate = 1.90%

    Real rate of return = (1 + nominal rate / 1 + inflation rate) - 1

    Real rate of return = ((1 + 0.0185) / (1 + 0.019)) - 1

    = (1.0185 / 1.019) - 1

    = 0.9995 - 1 = - 0.0005

    Therefore, the real dollar return I. $1,020 equals

    0.0005 * 1020 = 0.51
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