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1. Given the nominal interest rate of 17​% and the expected inflation of 13​%, then the value of the real interest rate is ___ ?

2. With the real interest rate equal to 3​% and the expected inflation equal to 4​%, then the value of the nominal interest rate is___?

3. A lender prefers a (high or lower) real interest rate while a borrower prefers a (higher or lower) real interest rate higher lowreal interest rate.

Respuesta :

Answer:

According to fisher equation

(1+nominal Interest rate)=(1+real interest rate)(1+inflation)

1) So 1.17=(1+R)(1.13)

1+R=1.17/1.13

R=1.035-1

R=0.0353

Real interest rate = 3.53 percent

2) (1+NIR)= 1.03*1.04

  1+ NIR= 1.072

NIR= 0.072

Nominal interest rate = 7.2 percent

A lender prefers a higher real interest rate as he will earn more money on the amount he has lend if the real interest rate is higher.

A borrower will prefer a lower real interest rate as he will have to pay lower interest payments on an amount if the real interest rate is lower.

Explanation:

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