Real interest rate approximately equals O a. Nominal interest rate plus inflation b. Risk-free interest rate less inflation c. Required reserves rate plus inflation d. Nominal interest rate less inflation
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- 1. Calculate the following:a) real interest rate if expected inflation is 3% and nominal interest rate is 2%,b) real interest rate if nominal interest rate is 50% and expected inflation is 44%c) nominal interest rate if expected deflation is -5% and real interest rate is 5% 2. You want to sell your bond that has a par value of ₱100,000 plus a 5 percent annual coupon rate that will mature after one year. The prevailing interest rate is 8%. Will you be able to sell your bond for ₱100,000 or higher? ExplainReal interest rate is equal to Nominal Interest rate when inflation is 2% True/False37) If the expected inflation rate was 2.5%, the expected real interest rate was 4.0%, and the real interest rate turned out to be 5.1%, then the nominal interest rate equals A) 1.4%. B) 1.5%. C) 2.6%. D) 6.5%.
- 8. Assume that S, = 1.60 USD/GBP. How will this spot rate adjust according to PPP if the United Kingdom experiences an inflation rate of 5% while the U.S. experiences an inflation rate of 3%?Abhijit deposits $100 in a bank account that pays an annual interest rate of 5 percent. A year later, Abhijit withdraws his $105. If inflation was 7 percent during the year the money was deposited, then Abhijit’s purchasing power has increased by 2 percent. Select one: True False50) You put money into an account and earn an after-tax real interest rate of 2.5 percent. If the nominal interest rate on the account is 8 percent and the inflation rate is 2 percent, then what is the tax rate? A) 28.00 percent. B) 36.25 percent. C) 43.75 percent. D) 67.50 percent.
- Suppose you borrow $1,000 of principal that must be repaid t the end of two years, along with interest of 5 percent a year. If the annual inflation rate turns out to be 10 percent, Hint: Future value = Present value x (1 + Growth in prices), where t is the number of years evaluated. Real value of loan repayment Amount of loan x (1 + Real interest rate) Instructions: Round your responses to the nearest whole number. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers. a. What is the real rate of interest on the loan? % b. What is the real value of the principal repayment? c. Who loses, the debtor or the creditor? Debtor O CreditorAn Investment offers a 14% total return over the coming year. Bill Morneau thinks the total real return on this Investment will be only 9%. What does Morneau believe the Inflation rate will be over the next year? (Do not round Intermediate calculations. Round the final answer to 2 decimal places.) Inflation rate1) If the expected inflation rate is negative A) the real interest rate is less than the nominal interest rate. B) the real interest rate is negative. c) the real interest rate is greater than the nominal interest rate. D) the nominal interest rate must be equal to the real interest rate. E) none of the above
- If the nominal interest rate is 4.2 percent and expected inflation rate is 3 percent, the real interest rate equals 7.2 percent. 1.2 percent. 3.6 percent. 12.6 percent. none of the aboveSuppose, you are planning to put away $20,000 of your savings for one year. You have the following options: 1.) Buy an indexed savings bond that earns 6.50% interest rate for the next year or, 2.) Buy a non-indexed savings bond that earns 11.00% interest rate for the next year. The inflation rate for the next year is expected to be 4.50%. Which option will you choose for the next year? OA. The non-indexed bond should be chosen as it pays a higher rate of interest. OB. The rate of inflation should not play a role in making this decision. OC. It does not matter whether the indexed or the non-indexed bonds are chosen, since they pay the same real rate of interest. D. The indexed bond option should be chosen as it protects from inflation.Suppose the government passes a new law that sets a limit on the interest rate that credit card companies can charge on overdue balances. As a result, the nominal interest rate charged by credit card companies falls from 12 percent a year to 2 percent a year. If the average income tax rate is 30 percent, explain how the real after-tax interest rate on overdue credit card balances changes. >>> Answer to 1 decimal place. Before the new law is passed, the real after-tax interest rate on credit card balances is percent divided by plus the inflation rate. multiplied by minus
