If the Risk Free Rate is 2% and the expected inflation rate is 3%, what is the nominal interest rate? Please show formula.
(1+ nominal rate)=
=(1+ inflation rate)(1+ risk free rate)
To calculate the nominal interest rate, you need to add the risk-free rate to the expected inflation rate. The formula to determine the nominal interest rate is as follows:
Nominal Interest Rate = Risk-Free Rate + Expected Inflation Rate
Given that the Risk-Free Rate is 2% and the expected inflation rate is 3%, you can substitute the values into the formula:
Nominal Interest Rate = 2% + 3% = 5%
Therefore, the nominal interest rate is 5%.