Question

Suppose you place $10,000 in a retirement fund that earns a nominal interest rate of 8 percent. If you expect inflation to be 5 percent or lower, then you are expecting to earn a real interest rate of at least: _________

a. 1.6 percent.
b. 3 percent.
c. 4 percent.
d. 5 percent.

Answer 1

b. 3 percent.

Step-by-step explanation:

Real interest rate is nominal interest rate less expected inflation rate.

Real interest rate = nominal interest rate - expected inflation rate

8% - 5% = 3%

I hope my answer helps you