To obtain an approximate estimate of the real interest rate, one must ________ the ________ the nominal risk-free rate.
A) add; default premium to
B) subtract; default premium from
C) add; expected inflation to
D) subtract; expected inflation from

Question

Quizplus · Accepted Answer

To obtain the real interest rate, we need to adjust the nominal rate for the expected inflation. Thus, the correct combination would be to subtract the expected inflation from the nominal rate.

To Obtain an Approximate Estimate of the Real Interest Rate