5.? What would be the nominal rate of interest if the real rate if 3%, the infla

Question

5.? What would be the nominal rate of interest if the real rate if 3%, the inflation premium is 4%, the risk free rate is 7%, the prime is 8%, and all risk factors total 2%?

d.? 24%

You will NEVER use the Prime in this course, so 8% isn't part of this answer.? The real rate plus the inflation premium, 7% is the same as the risk free rate.? If you added them together (14%) within your answer, you double counted those vairbles

5.? What would be the nominal rate of interest if the real rate if 3%, the inflation premium is 4%, the risk free rate is 7%, the prime is 8%, and all risk factors total 2%?

d.? 24%

You will NEVER use the Prime in this course, so 8% isn't part of this answer.? The real rate plus the inflation premium, 7% is the same as the risk free rate.? If you added them together (14%) within your answer, you double counted those vairbles

Explanation / Answer

Nominal risk-free rate = (1 + risk-free rate) x (1 + rate of inflation) - 1

= (1+0.07) * (1+0.04) -1 = 11.28%

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