If the current inflation rate is 4% and you have an investment opportunity that pays 10%, then the real rate of interest on your investment is closest to:
A)5.8%
B)6.0%
C)10.0%
D)14.0%

Question

Quizplus · Accepted Answer

The real rate of interest can be calculated using the formula: real rate = ((1 + nominal rate) / (1 + inflation rate)) - 1. Plugging in the given values: real rate = ((1 + 0.10) / (1 + 0.04)) - 1 = 0.0577 or 5.77%, which is closest to 5.8%.

If the Current Inflation Rate Is 4% and You Have