Compute the Nominal Interest Rate given the following information: On January 1, 2011, Joseph lends $500 to Helena. Helena agreed on paying Joseph the principal plus interest totaling $545 on January 1, 2012. Suppose that the CPI is 200 in January 1, 2011 and 214 on January 1, 2012. This increase in prices is more than Joseph and Helena had anticipated; their guess was that the CPI would be at 210 at the beginning of 2012.
Answers
Answered by
0
Answer:
Answer and Explanation:
Given information:
Principal plus interest is $545
One-year government bond price is $500
Calculation of Nominal Interest Rate:
N
o
m
i
n
a
l
I
n
t
e
r
e
s
t
R
a
t
e
=
(
P
r
i
n
c
i
p
a
l
p
l
u
s
i
n
t
e
r
e
s
t
−
O
n
e
−
y
e
a
r
g
o
v
e
r
n
m
e
n
t
b
o
n
d
p
r
i
c
e
)
O
n
e
−
y
e
a
r
g
o
v
e
r
n
m
e
n
t
b
o
n
d
p
r
i
c
e
=
(
$
545
−
$
500
)
$
500
=
$
45
$
500
=
0.09
o
r
9
%
Thus, the nominal interest rate is 9%.
Similar questions