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    • 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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