Asked by Maram Abdeljaber on May 18, 2024
Verified
Katarina puts money into an account. One year later she sees that she has 6 percent more dollars and that her money will buy 4 percent more goods. The nominal interest rate was
A) 10 percent and the inflation rate was 6 percent.
B) 6 percent and the inflation rate was 2 percent.
C) 4 percent and the inflation rate was 2 percent.
D) 10 percent and the inflation rate was 4 percent.
Nominal Interest Rate
The stated rate of interest on a financial instrument, not accounting for the compounding effect or inflation.
Inflation Rate
The elevation in the percentage cost of goods and services across an economy over an established period.
- Comprehend the impact of inflation on nominal and real returns from investments.
Verified Answer
CA
Cailee AnsayMay 21, 2024
Final Answer :
B
Explanation :
The nominal interest rate is the percentage increase in money, which is 6 percent. The real interest rate is the increase in purchasing power, which is 4 percent. The inflation rate is the difference between the nominal rate and the real rate, which is 2 percent (6% - 4% = 2%).
Learning Objectives
- Comprehend the impact of inflation on nominal and real returns from investments.