Answer to Question #146151 in Financial Math for Sade Givhan

Question

Anika’s savings account has stated interest rate of 2.5%. After inflation, the real return on her savings account is 1%. What is the normal interest rate on the account?

Answer 1

The normal interest rate is 2.5%.

From the definition of the Stated Interest rate and Nominal interest rate,we get that the normal interest rate is equal to the stated interest rate and does not include the inflation rate. Since the given stated interest rate is 2.5%, the normal rate of interest for the savings account is also 2.5%.