Problem 3-14

Real interest rates

The two-year interest rate is 13.2% and the expected annual inflation rate is 6.6%. a.What is the expected real interest rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Expected real interest rate %

b-1. If the expected rate of inflation suddenly rises to 8.6%, what does Fishers theory say about how the real interest rate will change?

b-3. If the expected rate of inflation suddenly rises to 8.6%, what will be the new nominal rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Nominal rate %