If investors receive a 6% interest rate on their bank deposits, what real interest rate will they earn if the inflation rate over the year is: (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

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20 December, 09:14

If investors receive a 6% interest rate on their bank deposits, what real interest rate will they earn if the inflation rate over the year is: (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

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Matteo · Answer 1

The question is missing the below details:

inflation rate of Zero % = real rate of 6%

inflation rate of 2.8% = real rate of 3.2%

inflation rate of 5.8% = real rate of 0.2%

Explanation:

The interest rate consists of both the real rate of return and the inflation rate - return meant to compensate investors the prevalent rate of return in the economy.

Nominal rate=real rate+Inflation rate

real rate=nominal rate-inflation rate

at inflation rate of 0

real rate = 6%-0

real rate - 6%

at inflation rate 2.8%

real rate=6%-2.8%

real rate=3.2%

at inflation rate of 5.8%

real rate=6%-5.8%

real rate=0.2%