You deposited your holiday bonus in your bank account on January 1, 2024. If the annual nominal interest rate is 4.3 percent and the inflation rate is 2.0 percent, you will earn ______ percent in real terms.

Round your answer to the nearest tenth of a percent.

Question

You deposited your holiday bonus in your bank account on January 1, 2024. If the annual nominal interest rate is 4.3 percent and the inflation rate is 2.0 percent, you will earn ______ percent in real terms.

Round your answer to the nearest tenth of a percent.

BlackTom AI · Accepted Answer

The question asks for the real interest rate given a nominal annual rate of 4.3% and an inflation rate of 2.0%, with rounding to the nearest tenth of a percent.

Since no answer options are provided to evaluate individually, I’ll walk through how to compute the real rate.

First, two common approaches exist:
- Simple approximation: real ≈ nominal − inflation. Here, 4.3% − 2.0% = 2.3%. This is often taught as a quick estimate, and it yields 2.3% before any rounding concerns.
- Fisher equation (more precise): real = (1 + nominal) / (1 + inflation) − 1. Converting to decimals: real = (1 + 0.043) / (1 + 0.02) − 1 = 1.043 / 1.02 − 1 ≈ 1.022549 − 1 ≈ 0.022549, i.e., about 2.2549%.

Next, rounding to the nearest tenth of a percent:
- Using the simple approximation, 2.3% already rounds to 2.3%.
- Using the Fisher calculation, 2.2549% rounds to 2.3% as well, since the hundredths place is 5 or greater, pushing the tenths place from 2.2 to 2.3.

Thus, both methods agree on the rounded result: real interest rate ≈ 2.3%.

If you were to present this to someone, you could note that the Fisher approach is more exact, but for many financial calculations and quick estimates, the 2.3% figure from the simple subtraction is effectively identical when rounded to one decimal place.

FA25 ECON 302 002 Midterm 3

You deposited your holiday bonus in your bank account on January 1, 2024. If the annual nominal interest rate is 4.3 percent and the inflation rate is 2.0 percent, you will earn ______ percent in real terms. Round your answer to the nearest tenth of a percent.

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