Question

If the rate of inflation is 4.8%, what nominal interest rate is necessary for you to earn a 2.8% real interest rate on your investment?

Answer 1

To earn a real interest rate of 2.8% with an inflation rate of 4.8%, an investor would need a nominal interest rate of 7.6%.

Step-by-step explanation:

To calculate the nominal interest rate necessary to earn a 2.8% real interest rate when the rate of inflation is 4.8%, we can use the formula:

Nominal Interest Rate = Real Interest Rate + Inflation Rate.

By plugging in the values provided:

Nominal Interest Rate = 2.8% + 4.8%

= 7.6%

Therefore, to earn a 2.8% real interest rate with a 4.8% rate of inflation, you would need a nominal interest rate of 7.6% on your investment.