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AICPA CPA-Business Exam - Topic 3 Question 127 Discussion
Actual exam question for
AICPA's
CPA-Business exam
Question #: 127
Topic #: 3
[All CPA-Business Questions]
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:
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.
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