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18 June, 21:47

Caroline has saved $100,000 for her retirement. She earned 4 percent interest on that money during the year 2013. If the inflation rate was 1 percent in 2013, what was Caroline's real interest rate?

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  1. 18 June, 23:32
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    Real rate of interest will be 3 %

    Explanation:

    We have given Caroline served $100000 for her retirement

    Rate earned 4% interest on that money

    So nominal rate earned = 4%

    We have given inflation rate = 1%

    We have to find the real rate of interest

    Real rate of interest is given by

    Real rate of interest = nominal rate earned - inflation rate

    So real rate of interest = 4-1 = 3 %
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