Question

Treasury bills are currently paying 4.7 percent and the inflation rate is 2.2 percent. What is the approximate real rate of interest?

Answer 1

2.4%

Step-by-step explanation:

The person real rate of interest is the interest which has been adjusted for inflation and can be calculated using the below formula:

(1+r)(1+i)=(1+n)

r= real rate of interest=?

n=nominal rate of interest=4.7%

i=inflation rate=2.2%

(1+r)(1+2.2%)=(1+4.7%)

1+r=(1+4.7%)/(1+2.2%)

1+r=1.024

r=1.024-1

r=0.024

r=0.024*100=2.4%