If the desired real rate of interest is 5 percent and the expected rate of inflation is 15 percent, what is the nominal rate of interest?
A)5 percent
B)10 percent
C)15 percent
D)20 percent

Question

Quizplus · Accepted Answer

The nominal rate of interest is calculated using the Fisher equation, which is: nominal rate = real rate + inflation rate. Therefore, the nominal rate is 5% (real rate) + 15% (inflation rate) = 20%.

If the Desired Real Rate of Interest Is 5 Percent