Suppose that the nominal risk-free rate of interest in Canada is 5%. The nominal risk-free rate in Germany is 8% with inﬂation of 6%. What is the approximate inﬂation rate in Canada?

Question

Quizplus · Accepted Answer

The real risk-free rate is approximately the same in both countries. In Germany, the real rate is 8% - 6% = 2%. Assuming the same real rate in Canada, the inflation rate would be 5% - 2% = 3%.

Suppose That the Nominal Risk-Free Rate of Interest in Canada