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31 May, 07:35

The difference between the nominal interest rate and the real interest rate is

A. the real interest rate is the stated interest rate whereas the nominal interest rate is the real interest rate minus the inflation rate.

B. the nominal interest rate is the stated interest rate whereas the real interest rate is the nominal interest rate divided by the inflation rate.

C. the nominal interest rate is the stated interest rate whereas the real interest rate is the nominal interest rate plus the inflation rate.

D. the nominal interest rate is the stated interest rate whereas the real interest rate is the nominal interest rate minus the inflation rate.

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  1. 31 May, 10:27
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    Answer: the correct answer is letter D. the nominal interest rate is the stated interest rate whereas the real interest rate is the nominal interest rate minus the inflation rate.

    Explanation: in financial maths when you speak about "real" rates you should consider the inflation impact.
  2. 31 May, 11:32
    0
    D. the nominal interest rate is the stated interest rate whereas the real interest rate is the nominal interest rate minus the inflation rate.

    Explanation:

    The nominal interest rate is that interest rate that is advertised by the financial institutions either as interest on loan or deposit. Since it is the interest rate stated in financial instruments like the ones quoted on bonds, it is also seen as the stated interest rate.

    The real interest rate is the interest rate which has been adjusted to remove the effect of inflation. That is, to get the real interest rate, take the nominal interest rate and subtract the inflation rate. therefore, we can use the following formula.

    Real Interest Rate = Nominal Interest Rate - Inflation Rate.

    In fact the real interest rate can be sen as the real cost of borrowing money.
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