If the current inflation rate is 5%, then the nominal rate necessary for you to earn an 8% real interest rate on your investment is closest to:

Question

Quizplus · Accepted Answer

To calculate the nominal rate necessary to earn an 8% real interest rate on an investment when inflation is 5%, we use the formula: nominal rate = (1 + real rate) x (1 + inflation rate) - 1 
Plugging in the given values, we get: nominal rate = (1 + 0.08) x (1 + 0.05) - 1 = 1.13 - 1 = 0.13 = 13% 
Therefore, the closest answer is D) 13.4%, which is the closest answer choice to 13%.

If the Current Inflation Rate Is 5%, Then the Nominal