Question

Caroline has saved $100,000 for her retirement. She earned 4 percent interest on that money during the year 2013. If the inflation rate was 1 percent in 2013, what was Caroline's real interest rate?

Answer 1

Real rate of interest will be 3 %

Step-by-step explanation:

We have given Caroline served $100000 for her retirement

Rate earned 4% interest on that money

So nominal rate earned = 4%

We have given inflation rate = 1%

We have to find the real rate of interest

Real rate of interest is given by

Real rate of interest = nominal rate earned - inflation rate

So real rate of interest = 4-1 =3 %