The regular saving rate at the Royal Bank of Canada (RBC) in 2025 is 0.55%. The official inflation rate in Canada in 2025 is 2.2%. What is the real interest rate of depositors of RBC?

Question

BlackTom AI · Accepted Answer

To determine the real interest rate for RBC deposits, we use the standard formula: real rate ≈ nominal interest rate − inflation rate.

Option 1: 2.75%. This value is far from the calculation and represents a positive real rate much higher than the nominal rate minus inflation. It does not align with the definition real rate = nominal − inflation, so this is incorrect.

Option 2: -1.65%. This matches the calculation: 0.55% (nominal) minus 2.2% (inflation) equals -1.65%. It correctly reflects that when inflation exceeds the nominal return, the real return is negative.

Option 3: -2.75%. This would imply taking the sum of the magnitude of nominal and inflation and assigning a negative sign, which is not how real rates are computed. It misapplies the relationship and yields an overly pessimistic result.

Option 4: 1.65%. This would be the result if you reversed the subtraction (inflation − nominal) or used a different interpretation, which is not the real rate formula. The real rate should decrease when inflation rises above the nominal rate, so a positive 1.65% is inconsistent with the given values.

In summary, the real interest rate uses the nominal rate and subtracts the inflation rate, and only Option 2 follows that relationship with the provided numbers.

The regular saving rate at the Royal Bank of Canada (RBC) in 2025 is 0.55%. The official inflation rate in Canada in 2025 is 2.2%. What is the real interest rate of depositors of RBC?

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