Question

If the market interest rate is 16% and the inflation rate is 10% determine the real interest rate

Answer 1

I think, Interest rate is free from inflation rate.
so, there will not be any effect .

Answer 2

Real rate of interest = 6%

Explanation:

Given:

The market rate of interest = 16%

Inflation rate = 10%

The real rate of interest =?

Computation of real rate of interest:

The real rate of interest = Market rate of interest - Inflation rat

Real rate of interest = 16% - 10%

The real rate of interest = 6%

Note: Nominal rate of return considers as the market rate of return  

Therefore, the real rate of interest is 6%

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