rowdy3 said:What would you expect the nominal rate of interest be if the real rate is 4% and the expected inflation rate is 7%?
I did n=4 I=7
(1+.04)= (1+.07)+(1+r)
1.04/1.07 - 1 = -2.80. Is that correct?
The formula for calculating nominal interest rate is: Nominal Interest Rate = Real Rate + Inflation Rate.
To calculate nominal interest rate, simply add the real rate and inflation rate together. For example, if the real rate is 4% and the inflation rate is 7%, the nominal interest rate would be 11%.
Calculating nominal interest rate is important in determining the true cost of borrowing or the true return on an investment. It takes into account both the real rate and the impact of inflation on the overall rate.
A high nominal interest rate can indicate a strong economy with high levels of inflation. This can make borrowing more expensive and can also lead to higher returns on investments.
The nominal interest rate can affect the purchasing power of money as it reflects the rate at which money is growing or shrinking in value. A higher nominal interest rate can potentially lead to a decrease in the purchasing power of money due to inflation.