Megans salary for three consecutive years along with other v

Megan\'s salary for three consecutive years, along with other values, are presented in the table below.

Year

2008 2009 2010

Salary $60,000 $65,000 $72,000

CPI 200.0 212.0 233.2

Real Interest Rate 3.0% 3.6% 3.3%

What is the nominal interest rate for 2009?

Solution

We know, inflation rate is given by :-
i = [CPI(this year) – CPI(last year)] / CPI(last year).
=> i = [212-200]/200 = 0.06 = 6 percent
We know,  (1+r)=(1+n)/(1+i)
where r is real interest rate, n is nominal interest rate and i is inlfation rate
=> (1+0.036) = (1+n)/ (1+0.06)
=> 1+n = 1.0981
=> n = 0.0981
So, nominal interest rate for 2009 is 9.81 per cent.