If the forecast holds true, and the stated effective rate for the year is 6.1% then the real rate of interest will be 1.05%
An economy experiences inflation when prices for goods and services generally go up. The purchasing power of money decreases when the general price level rises, which is why inflation is often known as a rise in prices.
The rate at which current products are preferred to future goods is reflected in the real interest rate. Real interest rates are computed for investments as the difference between nominal interest rates and inflation rates: Real interest rates equal the difference between the nominal and inflation rates (expected or actual).
Real rate of interest = (1 + nominal rate) / (1 + inflation rate) – 1
= ((1+0.061) /( 1+0.05))-1
= (1.061 / 1.05) - 1
= 1.0105 - 1
= 0.0105 or 1.05%
Therefore, the Real rate of interest is 1.05%
To know more about Inflation, refer to this link:
https://brainly.com/question/252791
#SPJ4
