1. A commercial bank offers a farmer a nominal interest rate of 5% when the inflation rate is 1.5%. What is the real interest rate?
4.50%
2.50%
5.00%
6.50%
3.50%
2. Suppose a market basket of goods cost $150 today. If inflation is 1.7% per year and interest rates are 2.5%, what would be the nominal price of this market basket one year from today? Hint: This is NOT an investment.
$150.00
$153.75
$152.55
$156.30
$147.45
$151.20
$146.25
3. A farmer decides to invest $8,000 today at a nominal compound interest rate of 1.5%. Suppose inflation is 2.2% per year. What is the nominal value of the farmer's investment after 5 years?
$8,618.27
$7,426.08
$8,832.65
$8,600.00
$10,210.25
$8,285.98
$7,723.89
none of the above
4. A farmer decides to invest $8,000 today at a nominal compound interest rate of 1.5%. Suppose inflation is 2.2% per year. What is the real value of the farmer's investment after 5 years?
$8,285.98
$7,723.89
$8,832.65
$7,720.00
$10,210.25
$8,618.27
$8,600.00
none of the above