Calculate the real interest rate if the nominal rate is 9.5% and the inflation rate is 3.9%. Hint: Base your answer on the “Fisher Effect”. Choose from the following answers: 5.89% 5.39% 5.60% 5.51%

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631 viewsOctober 22, 2016

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Darshita 6.14K October 22, 2016 0 Comments

Calculate the real interest rate if the nominal rate is 9.5% and the inflation rate is 3.9%. Hint: Base your answer on the “Fisher Effect”.

Choose from the following answers:

5.89%

5.39%

5.60%

5.51%

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score 0 · Answer 1 · 2016-10-22T08:19:34+00:00

Answer : 5.60%

Working notes for the above answer

Real interest rate means interest rate that has been adjusted to remove the effects of inflation to reflact the true and real cost of funds to borrower

Real Interest Rate is calculated as follow

Real Interest Rate = Nominal Interest rate – Inflation rate

We have been provided in the sum that

nominal rate is 9.5%

inflation rate is 3.9%.

So Real Inetrest rate is

=9.5%-3.9%

=5.6%

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