Question

If real rate of interest is 10% and inflation is 8% then what is nominal rate of interest

Answer 1

if the nominal interest rate offered on a three-year deposit is 4% and the inflation rate over this period is 3%, the investor’s real rate of return is 1%. On the other hand, if the nominal interest rate is 2% in an environment of 3% annual inflation, the investor’s purchasing power erodes by 1% per year.

Answer 2

Nominal rate of interest = 18%

Explanation:

Given:

The nominal rate of interest = ?

Inflation rate = 8%

The real rate of interest = 10%

Computation of real rate of interest:

The real rate of interest = nominal rate of interest - Inflation rate

Nominal rate of interest = The real rate of interest + Inflation rate

Nominal rate of interest = 10% + 8%

Nominal rate of interest = 18%

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