Juan wants to earn a real annual interest rate on his investment of at least 4%. If the annual rate of inflation is 4%, what is the minimum nominal rate of interest Joao would be willing to accept on his investment?(Write your answer in percentage. If your answer is 0.3, then write 30, do not add %)
Question
Juan wants to earn a real annual interest rate on his investment of at least 4%. If the annual rate of inflation is 4%, what is the minimum nominal rate of interest Joao would be willing to accept on his investment?(Write your answer in percentage. If your answer is 0.3, then write 30, do not add %)
Solution
The nominal interest rate can be calculated using the formula:
Nominal Interest Rate = Real Interest Rate + Inflation Rate
Given that Juan wants a real interest rate of 4% and the inflation rate is also 4%, we can substitute these values into the formula:
Nominal Interest Rate = 4% + 4% = 8%
So, the minimum nominal rate of interest Juan would be willing to accept on his investment is 8%.
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