If provided the nominal rate of interest (r) of 14.2% and the anticipated rate of inflation (i) of 5.5%, what is the real rate of interest (R)?
What will be an ideal response?
Answer:
r = R + i + iR
.142 = R + .055 + (.055)(R)
.142 - .055 = 1.055R + .055 - .055
.087 = 1.055R
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