The real rate of interest is equal to the nominal interest r

The real rate of interest is equal to the nominal interest rate

a. minus the rate of inflation

b. plus the price level

c. multiplied by the rate of inflation

d. plus the risk ratio

e. divided by the price level

Solution

the correct answer is option a. minus the rate of inflation.

For example:  if the nominal interest rate offered on a three-year deposit is 4% and the inflation rate over this period is 3%, the investor\'s real rate of return would be 1%.