Question

How can I find the inflationary premium when I have the money rate of interest and the real rate of interest? Or would I not have enough information?

Answer #1

Inflation is the difference between money interest rate and the real interest rate .

According to fisher the behaviour of money and real interest rates can be found aS FOLLOWS -:

i = r +

Here i = money/nominal rate of interest

r = real rate of interest

= Inflationary premium.

Therefore = i - r .

In this way you can find your inflationary premium.

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earn 2% per year on money I loan. A friend has recently offered me
an investment opportunity; if I make a $10,000 investment today,
then I will receive a guaranteed $10,500 in one year. I currently
have $10,000 in the bank, but I plan on consuming $8,000 – meaning
that I only have $2,000 that I could invest. Can/should make the
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T = 0.1Y
G = 100
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