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29 July, 16:59

If the rate of inflation is 5.4 % , what nominal interest rate is necessary for you to earn a 2.7 % real interest rate on your investment? (Note: Be careful not to round any intermediate steps less than six decimal places.)

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  1. 29 July, 18:23
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    8.2458%

    Explanation:

    According to Fisher Effect equation:

    (1 + nominal interest rate) = (1 + real interest rate) x (1 + expected annual inflation)

    1 + nominal interest rate = 1.027 x 1.054

    --> Nominal interest rate = 8.2458%
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