Caroline has saved $100,000 for her retirement. She earned 4 percent interest on that money during the year 2011. If the inflation rate was 1 percent in 2011, what was Caroline's real interest rate?

Question

Quizplus · Accepted Answer

Caroline's real interest rate is equal to her nominal interest rate (4 percent) minus the inflation rate (1 percent), which is 3 percent. Therefore, her earnings were $100,000 x 0.03 = $3,000. Option C is the correct answer.

Caroline Has Saved $100,000 for Her Retirement