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    Question

    What would be the real rate of interest If the money

    discount rate is 19% and Inflation is 12%
    A 7% Correct Answer Incorrect Answer
    B 6.25% Correct Answer Incorrect Answer
    C 6% Correct Answer Incorrect Answer
    D 7.25% Correct Answer Incorrect Answer
    E None of the above Correct Answer Incorrect Answer

    Solution

    Nominal rate or money discount rate + 1 = (1 + Inflation Rate) * (1 + Real Rate) Thus, Real rate = (1+ Money rate)/ (1+ inflation rate) - 1                             = (1+ 19%)/ (1+12%) -1                            = 1.19%                           = 6.25%

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