Question

Which statement best explains the interest rates related to this CD?

The nominal interest rate is 3 percent, while the real interest rate is 2 percent.
The nominal interest rate is 3 percent, while the real interest rate is 1 percent.
The nominal interest rate is 1 percent, while the real interest rate is 2 percent.
The nominal interest rate is 2 percent, while the real interest rate is 4 percent.

Answer 1

B. The nominal interest rate is 3 percent, while the real interest rate is 1 percent.

Answer 2

Answer: The answer is B. The nominal interest rate is 3 percent, while the real interest rate is 1 percent.

Explanation: In the description of the CD, the rate given is a description of the limit to which it can increase, so the maximum this CD will increase is 3 percent anually. But this value is attached to the difference with the annual inflation.