5.15

a. If there's no inflation, real and nominal rates are equal at 8%. With 5% inflation, the real rate is (1.08/1.05)-1= .02857, a bit less than 3%.

b. If you want a 3% real interest rate, you need a 3% nominal rate if inflation is zero and an 8.15% rate if inflation is 5%. Note that 1.03 x 1.05 1.0815.