Why the answer is 5%. 5. If the risk premium is 2%, the nominal borrowing rate is 7% and the real borrowing rateis 5%, what is the nominal policy rate? (You can use the approximation equation forcalculating the real interest rate)a. 1%b. 2%c. 3%d. 4%e. 5%(1+0.008)r = 1.017 - = 0.00893 €0.89% France1.008r = (1 + 0.017) -1 = 0.0119 119% Swill(1+0.005)Approximate formula (izr+ne)TFroce = πT² = 1.7%) - 0.8% = 0.9% France.rsuit = 1² = (1.7%) -(0.5%) = 1.2% Suit"i The higher r in Suita land is becameits lower Tiefi=rtie - Approx✓ ✓Cità)-(Hr)(1+ne) Exact ✓ XH

Given:- Risk premium rate=2% Nominal borrowing rate=7% Real borrowing rate=5% Please find detailed…

If the risk premium is 2%, the nominal borrowing rate is 7% and the real borrowing rate is 5%, what is the nominal policy rate? (You can use the approximation equation for calculating the real interest rate) a. 1% b. 2% c. 3% d. 4% e. 5% (1+0.008) r = 1.017 -1 = 0.00893 €0.89% France 1.008 r = (1 + 0.017) 1 = 0.0119 119% Swill (1+0.005) Approximats formula (i=5+ Te Trace=i-1² = 1.7%) - 0.8% = 0.9% France.

If the risk premium is 2%, the nominal borrowing rate is 7% and the real borrowing rate is 5%, what is the nominal policy rate? (You can use the approximation equation for calculating the real interest rate) a. 1% b. 2% c. 3% d. 4% e. 5% (1+0.008) r = 1.017 -1 = 0.00893 €0.89% France 1.008 r = (1 + 0.017) 1 = 0.0119 119% Swill (1+0.005) Approximats formula (i=5+ Te Trace=i-1² = 1.7%) - 0.8% = 0.9% France.

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter29: Interest, Rent, And Profit

Section: Chapter Questions

Problem 1WNG

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