Suppose you have a fixed-rate mortgage with a nominal interest rate of 6% and the expected annual inflation rate over the life of the mortgage is 2%.What is the expected real interest rate?
A) 3%
B) 4%
C) 8%
D) 12%

Question

Quizplus · Accepted Answer

The expected real interest rate can be calculated using the Fisher equation, which is approximately real interest rate = nominal interest rate - inflation rate. Therefore, 6% - 2% = 4%.

Suppose You Have a Fixed-Rate Mortgage with a Nominal Interest