Engineering Board Exam Reviewer · Inflation and Real Interest Rates · easy
A bank pays 12% per year while inflation is 5% per year. Find the real interest rate.
- 7%
- 6.67%
- 17.6%
- 5%
Answer
B. 6.67%
Solution
r=1+i/1+f-1=1.12/1.05-1=0.0667, or 6.67%.
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