Question

If the rate of inflation is 5 %​, what nominal interest rate is necessary for you to earn a 2.4 % real interest rate on your​ investment? ​(Note: Be careful not to round any intermediate steps less than six decimal​ places.)

Answer 1

7.52%

Step-by-step explanation:

Use fisher equation to solve this question. It is an equation that shows the relationship between nominal interest rate and real interest rate in consideration to inflation rate.

Fisher equation;

Nominal = [ (1+ Real rate) *(1+inflation)] -1

Nominal = [(1+0.024) *(1+0.05)] -1

Nominal = (1.024* 1.05 ) -1

Nominal = 1.0752 -1 = 0.0752 or 7.52%

Therefore, the nominal rate is 7.52%