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23 September, 13:46

Kaitlin has $10,000 of savings that she may deposit with her local bank. Kaitlin wants to earn a real rate of return of at least 4 percent and she is expecting inflation to be exactly 3 percent. What is the lowest nominal interest rate that Kaitlin would be willing to accept from her local bank A. 4 percent B. 5 percent C. 6 percent D. 7 percent

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  1. 23 September, 14:48
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    (D) 7 percent

    Explanation:

    Nominal interest rate is approximately equal to real interest rate + inflation rate

    = 4% + 3%

    = 7%.

    Thus, the minimum nominal interest rate that Kaitlin would be willing to accept from her local bank is 7%.
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