Question

Can the actual real rate of interest be negative? When? Can the expected real rate be negative?

Answer #1

Answer: To answer this question, we must examine the components associated with a real rate of interest. Formula of the real rate is expressed as follows:

Real rate = Nominal rate - inflation

Based on the information above, it is clear that a negative real rate can exist, if the rate of inflation exceeds the nominal rate. While unusual, this can occur during times of rapidly increasing inflation, where the market lags behind in setting nominal rates. As the market adjusts to the inflationary environment, the nominal rate will typhically rise above the level of inflation. However, during periods of extreme monetary easing, the nominal rate may remain below the rate of inflation, allowing a negative real rate to persist ( and be expected).

5) Borrowers benefit and lenders lose when the
A) actual interest rate is less than the expected real interest
rate.
B) actual interest rate is greater than the expected real
interest rate.
C) actual interest rate is equal to the expected real interest
rate.
D) actual inflation rate is less than the expected inflation
rate.
is it (a) by chance

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...

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.

can
i use expected return rate instead of interest rate when
calculating uncovered interest parity

People complained about ‘negative real interest rates’ in the
early 1990s, and again since 2009. Can real interest rates be
negative? How can that be so?

can you solve: using a financial calculator: EXPECTED INTEREST
RATE The real risk-free rate is 3%. Inflation is expected to be 3%
this year, 4% next year, and 3 5% thereafter. The maturity risk
premium is estimated to be 0 05 t 1 %, where t = number of years to
maturity. What is the yield on a 7-year Treasury note?

52.
An investor desires to earn a real interest rate of 6%. If the
expected rate of inflation is 5%, what nominal rate of interest
would the investor set on a loan if all risk premiums are
zero?

At? present, the real? risk-free rate of interest is 1.4?%,
while inflation is expected to be 1.5?% for the next two years. If
a? 2-year Treasury note yields 5.3?%, what is the? maturity-risk
premium for this? 2-year Treasury? note?
The? maturity-risk premium for the? 2-year Treasury note is %?
If the real? risk-free rate of interest is 4.7 % and the rate of
inflation is expected to be constant at a level of 3.2 %?, what
would you expect? 1-year...

When the actual inflation rate turns out to be greater than the
expected inflation rate, who gains—the borrower or the lender—and
who loses? Explain why.

The risk-free interest rate can be expressed as a function of
which of the following?
Real rate of interest and the inflation premium
Real rate of interest, inflation premium, and the default risk
premium
Deflation premium, real rate of interest, and the default risk
premium
Default risk premium, market risk premium, and the liquidity
premium

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