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This is kind of a dumb question. I just want to make sure that I understand why this is the right answer Question: If the real rate of interest is...

This is kind of a dumb question. I just want to make sure that I understand why this is the right answer


Question: If the real rate of interest is 5.2% and the nominal rate is 7.8%, what is the expected inflation premium?


The answer is listed as 2.471%.


I am getting 1.0247, which is right I guess if I subtract 1. Can you explain why this is the right answer? Do I always subtract one with this formula? The one given is (1+inflation premium)=(1+ nominal rate)/(1+real rate).


Thank you!!

Top Answer

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Inflation Premium : It refers to the part of interest... View the full answer

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