Math

The nominal rate of interest is 8% and the rate of inflation is 5%. A single deposit is invested for 10 years. Let:

A= value of the investment at the end of 10 years measured in "constant dollars," i.e. in dollars valued at time 0.
B= value of the investment at the end of 10 years computed at the real rate of interest.

Find the ratio A/B.

  1. 👍 0
  2. 👎 0
  3. 👁 61
asked by Katie

Respond to this Question

First Name

Your Response

Similar Questions

  1. AP Macroeconomics

    3. You buy a certificate of deposit (CD) that pays a nominal rate of 12% annually. You have a tax rate of 25%, so if the interest on this CD is taxable (which it may not be) your after-tax nominal rate is (1 ñ 25%) • 12% = 9%.

    asked by Emily on October 21, 2013
  2. Economics

    The formula given was: (real rate of interest) = (nominal rate of interest) - (expected rate of inflation) A chartered bank offers a one-year loan at "3 points above prime." Prime is 4 per cent. a) What is the nominal interest

    asked by Seinna on May 17, 2012
  3. Economics

    If the velocity of circulation is constant, real GDP is growing at 3 percent a year, the real interest rate is 2 percent a year, and the nominal interest rate is 7 percent a year. a)What is the inflation rate? b)What is the growth

    asked by Jayda on November 27, 2006
  4. international economic

    2.) This question uses the general monetary model, in which L is no longer assumed constant and money demand is inversely related to the nominal interest rate. Consider the same scenario described in the beginning of the previous

    asked by Anonymous on November 17, 2011
  5. econ

    True or false; 1.Lenders gain when inflation is higher than expected. 2. Lenders lose when inflation is higher than expected 3. real interest rates will never go negative 4. loan contracts specify the nominal interest rate. 5. if

    asked by hannah on February 10, 2014
  6. econ

    True or false; 1.Lenders gain when inflation is higher than expected. 2. Lenders lose when inflation is higher than expected 3. real interest rates will never go negative 4. loan contracts specify the nominal interest rate. 5. if

    asked by hannah on February 11, 2014
  7. business

    For a given nominal interest rate, an unexpectedly low inflation rate ______ the real interest rate. a. increases b. decreases c. has no impact on d. may either increase or decrease e. is subtracted from

    asked by Drew on March 17, 2008
  8. Math

    If the Risk Free Rate is 2% and the expected inflation rate is 3%, what is the nominal interest rate? Please show formula.

    asked by Susan on June 8, 2011
  9. Determinants of Interest Rates

    If the rate of inflation is 5%, what nominal interest rate is necessary for you to earn a 3% real interest rate on your investment?

    asked by Anonymous on October 20, 2010
  10. corporate finance

    If the rate of inflation is 5%, what nominal interest rate is necessary for you to earn a 3% real interest rate on your investment?

    asked by rob on October 19, 2010

More Similar Questions