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If the real rate of return is 6% and the nominal interest rate is 11%, what...

If the real rate of return is 6% and the nominal interest rate is 11%, what is the inflation rate? Group of answer choices 4.72% 3.27% 17.66% 4.50%

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Answer #1
Using Fisher equation formula
(1+nominal rate of return)= (1+ Real rate of return) (1+Inflation rate)
Nominal Interest Rate= 11.00%
Real Rate of Return= 6.00%
(1+nominal rate of return)= (1+ Real rate of return) (1+Inflation rate)
(1+0.11)= (1+0.06) (1+Inflation rate)
(1+0.11)/ (1+0.06)= (1+Inflation rate)
1.11/1.06= (1+Inflation rate)
1.0472= (1+Inflation rate)
Inflation rate= 1.0472 - 1
Inflation rate= 0.0472
Inflation rate= 4.72%
Therefore , inflation rate would be 4.72%
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