What is the real interest rate

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Reference no: EM131958086

1. A commercial bank offers a farmer a nominal interest rate of 5% when the inflation rate is 1.5%. What is the real interest rate?

4.50%

2.50%

5.00%

6.50%

3.50%

2. Suppose a market basket of goods cost $150 today. If inflation is 1.7% per year and interest rates are 2.5%, what would be the nominal price of this market basket one year from today? Hint: This is NOT an investment.

$150.00

$153.75

$152.55

$156.30

$147.45

$151.20

$146.25

3. A farmer decides to invest $8,000 today at a nominal compound interest rate of 1.5%. Suppose inflation is 2.2% per year. What is the nominal value of the farmer's investment after 5 years?

$8,618.27

$7,426.08

$8,832.65

$8,600.00

$10,210.25

$8,285.98

$7,723.89

none of the above

4. A farmer decides to invest $8,000 today at a nominal compound interest rate of 1.5%. Suppose inflation is 2.2% per year. What is the real value of the farmer's investment after 5 years?

$8,285.98

$7,723.89

$8,832.65

$7,720.00

$10,210.25

$8,618.27

$8,600.00

none of the above

Reference no: EM131958086

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