Round to two decimals places. Score: 0 of 5 pts 12 of 12 (9 complete) ? HW Score

Question

Round to two decimals places.

Score: 0 of 5 pts 12 of 12 (9 complete) ? HW Score: 58%, 29 of 50 pts P9-23 (similar to) Question Help * (Related to Checkpoint 9.6) (Inflation and interest rates) What would you expect the nominal rate of interest to be if the real rate is 3 6 percent and the expected inflation rate is 75 percent The nominal rate of interest would be?% (Round to two decimal places) Enter your answer in the answer box and then click Check Answer Clear All All parts showing 603 PM ???. oo w? Type here to search

Explanation / Answer

[1+ real rate of interest] = [1+nominal rate of interest] / [1+Inflation rate of interest]

real rate of interest = 3.6% or 0.036

Inflation rate of interest = 7.5% or 0.075

[1+ real rate of interest] = [1+nominal rate of interest] / [1+Inflation rate of interest]

[1+0.036] = [1+nominal rate of interest] / [1+ 0.075]

Rearranging the formula

[1+0.036] * [1+ 0.075] = 1+nominal rate of interest

1.1137 = 1+nominal rate of interest

nominal rate of interest = 1.1137-1 = 0.1137 or 11.37%

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