Given an anticipated inflation premium of 1.25% and a real rate of interest of 3.75%, what is the nominal interest rate? Round your answer to 4 decimal places. Group of answer choices

n=1.05-1=5%

Explanation:

The nominal interest rate for any project/investment is calculated using the following equation:

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

Where

n = nominal interest rate = to be calculated

i=inflation rate=1.25% in the given question

r = real interest rate=3.75% in the given question

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

1+n = (1+1.25%) (1+3.75%)

1+n=1.05

n=1.05-1=5%