Question

If the inflation in the country is
4.2 percent and the interest rates
are 6.25 percent, calculate the
real rate of interest in %.

A. 3
B. 1.96
C. 3.03
D. 2.5​

Answer 1

Given :    inflation in the country is 4.2 percent and the interest rates

are 6.25 percent,  

To find : real rate of interest in %

Solution:

inflation in the country = 4.2 %

interest Rate  = 6.25 %  

Let say Some one Had and required   = Rs 100P

inflation in the country = 4.2 %

Then He needed = 100P + (4.2/100)P   = 104.2P

Interest rate he got  =  6.25 %

SI = P * R * T /100

Amount he had now = 100P  + 100P * 6.25 * 1/100  = 106.25P

he had extra = 106.25P - 104.2P

= 2.05P

Let say Real  Interest Rate = R      

=> (104.2P * R  * 1)/100  = 2.05P

=> R = 1.96

real rate of interest in %  = 1.96 %

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