Question

A commercial bank offers a farmer a nominal interest rate of 5% when the inflation rate is 1.5%. What is the real interest rate? (Points : 5)

       4.50%
       2.50%
       5.00%
       6.50%
       3.50%

correct formula for calculations involving simple interest? (Points : 7)

      

Question 5.5. What is the future value of $3,500 invested at 2 percent for ten years with annual compounding? (Points : 7)

       $2,871.22
       $3,570.00
       $4,200.00
       $4,235.00
       $4,266.48
       $2,892.56
       $3,431.37
       $3,501.10
       none of the above

Answer 1

1)
Real interest rate is the interest rate that does not take into account inflation.
On the other hand, Noimnal interest rate is interest rate by considering inflation factor.
Real Interest rate		=	Nominal Interest rate-Inflation rate
		=	5.00%-1.50%
		=	3.50%
2)
Simple Interest		=	Prinicpal x Interest Rate x period
3)
Future Value of Investment			=	P*(1+i)^n			Where,
			=	3500*(1+0.02)^10			P	Investment		$   3,500
			=	$4,266.48			i	Interest rate		2%
							n	period of investment		10