Over the past year, you earned a nominal rate of interest of 9% on your money. The inflation rate was 3% over the same period. The exact actual growth rate of your purchasing power was
A) 15.5%.
B) 10.0%.
C) 5.8%.
D) 4.8%.
E) 15.0%.

Question

Quizplus · Accepted Answer

The actual growth rate of purchasing power is the nominal interest rate minus the inflation rate. So, 9% - 3% = 6%. However, this is the exact growth rate, not the approximate growth rate. The approximate growth rate is 6% + (6% * 3%) = 6.18%.

Over the Past Year, You Earned a Nominal Rate of Interest