On January 1, 2008, Anna invested $5,000 at 5% interest for one year.The CPI on January 1, 2009 stood at 1.60.On January 1, 2009, the CPI was 1.68.The real rate of interest earned by Anna was ______ percent.
A)-5
B)0
C)5
D)8

Question

Quizplus · Accepted Answer

The real rate of interest is calculated by adjusting the nominal interest rate for inflation. The nominal interest rate is 5%. The inflation rate is calculated as (1.68 - 1.60) / 1.60 = 0.05 or 5%. Therefore, the real rate of interest is 5% - 5% = 0%.

On January 1, 2008, Anna Invested $5,000 at 5% Interest