a) 5%
b) 6%
c)7%
d) 11%
correct answer is: a) 5%
Explanation
Here,
Inflation rate is 3 %
and Nominal rate is 8 %
We know,
Real interest rate = (Nominal interest rate – Inflation rate)
\therefore Real interest rate =\left(8\%\;-\;3\%\right)
=\ 5 %
Ans: If the inflation rate is at 3% and the nominal interest rate is at 8%, then the real rate of interest is 5%.
This particular question can also be asked in the following way:
1. How to calculate the real rate of interest when the inflation rate is 3% and the nominal interest rate is 8%?
2. What is the formula to find the real rate of interest given the inflation rate of 3% and the nominal interest rate of 8%?
3. Determine the real rate of interest with an inflation rate of 3% and a nominal interest rate of 8%.
4. Calculate the difference between the nominal interest rate and inflation rate to find the real rate of interest.
5. What is the actual purchasing power gain or loss when the nominal interest rate is 8% and the inflation rate is 3%?