AICPA CPA-Business Exam - Topic 3 Question 127 Discussion

Actual exam question for AICPA's CPA-Business exam

Question #: 127
Topic #: 3

Initially the nominal interest rate is 8 percent and the inflation rate is 6 percent. One year later, the nominal interest rate rises to 12 percent while the inflation rate rises to 10 percent. It follows that the real rate of interest:

AHas remained the same.

BHas fallen.

CHas risen.

DInsufficient information given for an answer.

Show Suggested Answer

Suggested Answer: A

Choice 'a' is correct. The real interest rate equals the nominal interest rate minus the inflation rate. Thus, the real interest rate in the first year is: real interest rate = 8 6 = 2 and the real interest rate in the next year is: real interest rate = 12 10 = 2.

by Donte at May 27, 2026, 06:57 AM

Limited Time Offer

25%

Off

Get Premium CPA-Business Questions as Interactive Web-Based Practice Test or PDF

Contribute your Thoughts:

Submit Cancel

Callie

I believe the real interest rate has fallen since the inflation rate increased more than the nominal rate. But I should double-check my notes on this!

upvoted 0 times

...

Asuncion

5 days ago

I’m a bit confused about the calculations. If both rates are rising, does that mean the real rate stays the same?

upvoted 0 times

...

Richelle

10 days ago

I remember a practice question where the nominal rate increased but the inflation rate increased even more, which led to a lower real interest rate. This seems similar.

upvoted 0 times

...

Viva

15 days ago

I think the real interest rate is calculated by subtracting the inflation rate from the nominal rate, but I'm not completely sure how it changes over time.

upvoted 0 times

...