Answered: (Related to Checkpoint 9.6)…

(Related to Checkpoint 9.6) (Inflation and interest rates) What would you expect the nominal rate of interest to be if the real rate is 3.9 percent and the expected inflation rate is 6.8 percent?

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter7: International Arbitrage And Interest Rate Parity

Section: Chapter Questions

Problem 37QA

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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

Question content area top

Part 1

(Related to Checkpoint 9.6)

(Inflation

and interest

rates)

What would you expect the nominal rate of interest to be if the real rate is

3.9

percent and the expected inflation rate is

6.8

percent?

Question content area bottom

Part 1

The nominal rate of interest would be

enter your response here%.

(Round to two decimal places.)

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