Question

True or false? the nominal interest rate on a risk-free investment is approximately equal to the sum of the real rate of interest plus an inflation premium.

Answer 1

True

Step-by-step explanation:

A real rate of interest is the compensation paid by the borrower of funds to the lender. A nominal rate of interest is equal to the sum of the real rate of interest plus the risk free rate of interest. Risk-free rate of interest is equal to the sum of the real rate of interest plus an inflation premium.