Determinants of Interest Rates Problem Illustration: Solving for the Nominal Rate of Interest After considering a number of investment opportunities, you have decided that you should be able to earn a real return of 2% on your P100,000 in savings over the coming year. If the expected rate of inflation is expected to be 3.5% over the coming year, what nominal rate of return must you anticipate in order to earn the 2% real rate of return? Nominal rate= (1 + Real rate) + (1 + Inflation rate) - 1 = Real rate + Inflation rate + ( Real rate x Inflation rate)