Suppose the nominal interest rate on a savings bond is 7 percent a year and the inflation rate is 4.5 percent a year.How much is the real interest rate?
A) 1.56 percent
B) 11.5 percent
C) 2.5 percent
D) 7 percent
E) 4.5 percent

Question

Quizplus · Accepted Answer

The real interest rate is calculated by subtracting the inflation rate from the nominal interest rate. Therefore, the real interest rate in this case would be 2.5 percent (7 percent - 4.5 percent).

Suppose the Nominal Interest Rate on a Savings Bond Is