Question

The real rate of interest equals 5.0% and the anticipated rate of inflation is 2.0%. What does the nominal rate of interest equal?

Answer #1

The nominal interest rate is the rate of I teresa that does not take into account the inflation rate that is to be xpected within the period of the loan. This question can be approached using the fisher equation which will provide us with the relationship between the two values and how correct the rate using the correction for inflation. In easier terms, the real interest rate is calculated by the equation

REAL INTEREST RATE = NOMINAL INTEREST RATE - INFLATION RATE.

Therefore

NOMINAL RATE OF INTEREST = REAL RATE OF INTEREST + INFLATION

NRI = 5%+2% = 7%.

If the nominal interest rate is 3.8 percent, and the real
interest rate is 2.0 percent, then using the Fisher Equation, the
expected inflation must be _______

I. The nominal interest rate is 7%. If the
expected inflation is 1% and the risk premium equals 2%, then what
does the risk-free rate equal?
II. The nominal risk-free rate is 7% and the
real rate of interest is 3%; then what is the expected inflation is
expected to be?

The spot rate for the CRL is $0.0587/CRL. The U.S. inflation
rate is anticipated to be 2.8%. The Country L inflation rate is
expected to be 5.8%. Both countries are expected to have a real
interest rate of 1.2%. Show calculations.
a.)Based on the Fisher effect, calculate the U.S. nominal
interest rate.
b.) Based on the Fisher effect, calculate the Country L nominal
interest rate.
c.)Using the international Fisher effect, calculate the expected
spot rate in 3 years.

Assume that you have the following information:- Real rate of
interest = 2.0%; Expected Inflation = 3.0%; Required return on the
Market = 12.0%; EPS = $2.0; Dividend pay-out ratio = 30.0%; Growth
rate in EPS & Dividends per share = 5.0% (constant); Industry
P/E multiple is 12; .
Answer the following questions:- 1 - The Required or Expected
return on the stock is??? 2 - Next year's dividends per share (D1)
is ???? 3 - According to the "Constant...

Assume that you have the following information:- Real rate of
interest = 2.0%; Expected Inflation = 3.0%; Required return on the
Market = 12.0%; EPS = $2.0; Dividend pay-out ratio = 30.0%; Growth
rate in EPS & Dividends per share = 5.0% (constant); Industry
P/E multiple is 12; . Answer the following questions:- 1 - The
Required or Expected return on the stock is??? 2 - Next year's
dividends per share (D1) is ???? 3 - According to the "Constant...

Distinguish between the nominal rate and the real rate of
interest. How does inflation affect the real, ex post (after the
fact) rate of return to investors?

The spot rate for the Omani Rial is $2.6008/Rial. The U.S.
inflation rate is anticipated to be 1.3%. The Oman inflation rate
is expected to be 7.5%. Both countries are expected to have a real
interest rate of 1.5%. Show calculations.
A.) Based on the Fisher effect, calculate the U.S. nominal
interest rate (x.xx%).
B.) Based on the Fisher effect, calculate the Uzbekistan nominal
interest rate (x.xx%).
C.) Using purchasing power parity, calculate the expected spot
rate in 1 year....

If the real interest rate was large during the last year, then
a. inflation is expected to exceed the nominal interest rate in the
future. b. inflation is expected to be less than the nominal
interest rate in the future. c. actual inflation was less than the
nominal interest rate. d. actual inflation was greater than the
nominal interest rate.

a. What is realised real interest rate? Can a change in expected
inflation rate affect the realised real interest rate? Explain.
b. Suppose that there is an increase in expected inflation rate
from 3 percent to 6 percent. Given that the after-tax expected real
interest rate remains unchanged at 2 percent and the tax rate is 30
percent, find the original and the new nominal interest rates.
c. Suggest ONE way in which investors can reduce/avoid the risk
of unexpected...

Given the nominal interest rate of 13% and the expected
inflation of 15%, then the value of the real interest rate is ___
?
2. With the real interest rate equal to 3% and the expected
inflation equal to 2%, then the value of the nominal interest rate
is___?
3. A lender prefers a (high or lower) real interest rate while a
borrower prefers a (higher or lower) real interest rate higher
lowreal interest rate.

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