[Madhu Chandarasekaran, CFAKeymaster]

For Q1:   You need to use the Fisher Equation:

the formula is as follows:

(1 + nominal rate) = (1 + real rate) × (1 + inflation rate)

Rearranging for the real rate:

real rate = (1 + nominal rat

For Q1:   You need to use the Fisher Equation:

the formula is as follows:

(1 + nominal rate) = (1 + real rate) × (1 + inflation rate)

Rearranging for the real rate:

real rate = (1 + nominal rate) / (1 + inflation rate) – 1

Given:

– Nominal rate = 8% = 0.08

– Inflation rate = 3% = 0.03

Plugging in the values:

real rate = (1 + 0.08) / (1 + 0.03) – 1

real rate = 1.08 / 1.03 – 1

Calculating this:

real rate ≈ 0.0485 or 4.85%

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