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Financial homework

  1. Jan 20, 2014 #1
    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?
     
  2. jcsd
  3. Jan 21, 2014 #2

    Ray Vickson

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    Which line do you intend as your answer? The second and third lines give different results, so you need to decide. Also: give reasons; don't just write things down without explanation of the logic. Finally: when I compute 1.07/1.04-1 I do not get -2.80. Hint: write down correct things, and do not assume people can read your mind.
     
    Last edited: Jan 21, 2014
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