Answered: (Click on the following icon e in order…

(Click on the following icon e in order to copy its contents into a spreadsheet.) Approximate True Nominal Rate Inflation Rate Real Rate Real Rate 11.0% 6.0% ? ? 8.0% 3.5% ? ? 21.0% 16.0% 4.0% 8.0%

Excel Applications for Accounting Principles

4th Edition

ISBN:9781111581565

Author:Gaylord N. Smith

Publisher:Gaylord N. Smith

Chapter26: Capital Budgeting (capbud)

Section: Chapter Questions

Problem 2R

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Concept explainers

Interest Rate

When you deposit your money with the bank, the deposit earns you some extra money at the end of the specific period – something more than what you deposited. That amount of money that the bank pays you for keeping the money with the bank is the “interest” and the percentage at which the bank pays you for your amount is called the “interest rate”.

Question

Inflation, nominal interest rates, and real

rates.

Given the following information,

estimate the real rate with the approximate nominal interest rate equation and the true nominal interest rate equation (Fisher effect) for each set of nominal and inflation rates.

(Click on the following icon e in order to copy its contents into a spreadsheet.)
Approximate
True
Nominal Rate
Inflation Rate
Real Rate
Real Rate
11.0%
6.0%
?
?
8.0%
3.5%
?
21.0%
16.0%
?
4.0%
8.0%

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