Engineering Board Exam Reviewer · Inflation and Real Interest Rates · easy
The real (inflation-free) interest rate is 6% and inflation is 4% per year. Find the market (combined) interest rate.
- 10.24%
- 10%
- 1.92%
- 24%
Answer
A. 10.24%
Solution
i=r+f+rf=(1+r)(1+f)-1=(1.06)(1.04)-1=0.1024, or 10.24%.
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