Real Rate 4%, Inflation 7%: Calculate Nominal Interest Rate

[rowdy3]

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?

 

[Ray Vickson]

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?

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.