On January 1,2008,Edward invested $10,000 at 5% interest for one year.The consumer price index (CPI)on January 1,2008 stood at 160.On January 1,2009,the CPI was 176.The real rate of interest earned by Edward was

Question

Quizplus · Accepted Answer

The real rate of interest is the nominal rate of interest minus the inflation rate. The nominal rate of interest is 5%. The inflation rate is (176 - 160) / 160 = 10%. Therefore, the real rate of interest is 5% - 10% = -5%.

On January 1,2008,Edward Invested $10,000 at 5% Interest for One