Suppose you place $10,000 in a retirement fund that earns a nominal interest rate of 8 percent. If you expect inflation to be 5 percent or lower, then you are expecting to earn a real interest rate of at least:
A) 1.6 percent.
B) 3 percent.
C) 4 percent.
D) 5 percent.

Question

Quizplus · Accepted Answer

The real interest rate can be calculated as the nominal interest rate minus the inflation rate. So, in this case, the real interest rate would be 3 percent (8 percent - 5 percent = 3 percent). Therefore, choice B is the best option.

Suppose You Place $10,000 in a Retirement Fund That Earns