The current one-year nominal interest in Canada is 7%.If the anticipated inflation for the coming year in Canada is 2.5%, what is the real interest rate?

Name: The current one-year nominal interest in Canada is 7%.If the anticipated inflation for the coming year in Canada is 2.5%, what is the real interest rate?
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Question

Quizplus · Accepted Answer

Real interest rate = [(1+nominal interest rate)/(1+inflation rate)]-1
Real interest rate = [(1+0.07)/(1+0.025)]-1
Real interest rate = 0.0439 or 4.39% (rounded to two decimal places)

The Current One-Year Nominal Interest in Canada Is 7