Please help solve On January 1, 2011, Maria invested $1,000 at 6 percent interest per year for three years (with yearly capitalization). The CPI stoodat 100 in January 1, 2011. At year laterit climbed to 105 and on January 1,2013 was110, and on January 1,2014, the dayMarias investment matured, the CPI was at 120. Find the real interest rate that Maria's total real return over the 3-year period.(Write your answer without the %. If your answer is XX.yy6, write XX.y, only two decimal points.)Type your numeric answer and submit

Real Interest Rates The interest rate that takes inflation into account is called a real interest rate. This means it takes inflation into account when calculating the real rate of a bond or loan. The nominal interest rate is required to compute the real interest rate. The real interest rate is calculated by subtracting the nominal interest rate from the actual or predicted inflation rate. When the true rate of inflation is unknown or projected, real interest rates should be regarded as predictive. Assume a bank lends an individual $200,000 to buy a house at a nominal interest rate of 3% (without accounting for inflation). Assume that the inflation rate is 2%. The borrower is paying a 1 percent real interest rate. The bank receives a one percent real interest rate. That means the bank's purchasing power is only increased by 1%. The real interest rate informs lenders and investors about the real rate they will receive when inflation is considered. This also allows them to see how quickly their purchasing power is increasing or decreasing. They can calculate their real rate of return by comparing the difference between the yield on a Treasury bond and the yield on Treasury Inflation-Protected Securities (TIPS) of the same term, which indicates inflation expectations in the economy. Nominal Interest Rates The interest rate before inflation is referred to as a nominal interest rate. It is the interest rate on bonds and loans that is quoted. The nominal interest rate is a straightforward notion. If you borrow $100 at a 6% interest rate, you may expect to pay $6 in interest without taking inflation into account. The use of the nominal interest rate has the disadvantage of not accounting for inflation. Central banks set short-term nominal interest rates. These rates serve as the foundation for various interest rates that banks and other institutions charge consumers. To stimulate economic activity, central banks may decide to maintain nominal rates low. Consumers are encouraged to take on more debt and spend more since nominal rates are low. After the Great Recession, this was the situation when the Federal Reserve of the United States cut the Federal Funds Rate to a range of 0% to 0.25 percent. Between December 2008 and December 2015, the rate remained in this range.The nominal annual interest rate for 2011-12, 2012-13, and 2013-14 is 6%, assuming that interest earnings are reinvested each year and earn interest. This means that In nominal terms, a $1,000 investment in January 2011 would rise to $1060 in January 2012 at a rate of 6%. In nominal terms, the amount of $1060 in January 2012 would grow to $1123.6 in January 2013 at a rate of 6%. Finally, the sum of $1123.6 in January 2013 would increase by 6% to $1191.016 in January 2014 in nominal terms. On January 1, 2011, January 2, 2012, January 3, 2013, and January 4, 2014, the true value of the sum is calculated as follows: real value = (nominal value/100) x 100 Further, for each of the three years, the real rate of interest is determined by the rate of change in the real value of the invested amount (Method1) However, if the inflation rate is calculated using CPI data and the real interest rate is calculated using Fisher's equation for each of the three years, the following is the result: (Method2) Nominal interest rate — inflation rate = Real interest rate There is a slight distinction between the two approaches for calculating the real interest rate. In dollar terms, the total real return during the three years is: In January 2014, the real value of the invested amount was compared to the real value of the invested amount in January 2011. As a result, the true total return in dollar terms for the three years is: $1009.335593 — $1000 = $9.335593 For 2009, the inflation rate was(105 100) - 1 = 5%. For 2010, the inflation rate was (110 105) -1 = 4.76% For 2011, the inflation rate was (120110) - 1 = 9.09% Average three-year inflation rate = (120100)(13) - 1 = 6.265 For 2009, the real return is (1 +.06) / (1 +.05) — 1 = 0.95 percent. For 2010, the real return is (1 +.06) / (1 +.0476) - 1 = 1.18 percent. For 2011, the real return is (1 +.06) / (1 +.0909) - 1 = (−) 2.83 percent. Over a three-year period, the total real rate of return = ((1 + 0.0095) × (1 + 0.0118) × (1 - 0.0283)) + 1 = (-)0.2676 percent