Question

    Given that the money discount rate is 19% and Inflation

    is 12%, what will be the real rate of interest?
    A 31% Correct Answer Incorrect Answer
    B 31.25% Correct Answer Incorrect Answer
    C 7% Correct Answer Incorrect Answer
    D 6.25% Correct Answer Incorrect Answer
    E 1.58% 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%/1/12% -1                           = 6.25%

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