A bank offers me 10% annual interest on an investment, but the inflation rate is 5%. What is the real interest rate?
A)2%
B)4.76%
C)5%
D)15%
E)15.5%

Question

Quizplus · Accepted Answer

The real interest rate can be calculated using the formula: Real Interest Rate = ((1 + nominal interest rate) / (1 + inflation rate)) - 1. Plugging in the values: ((1 + 0.10) / (1 + 0.05)) - 1 = 0.0476 or 4.76%.

A Bank Offers Me 10% Annual Interest on an Investment