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What is the real interest rate over the past year

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Reference no: EM131191989

Suppose that the price of refrigerators always changes at the rate of the economy's inflation. A refrigerator sells for $1,100 today, but the same refrigerator sold for $1,000 one year ago. A bank deposit of $100 a year ago earned 4% interest over the last year. What is the real interest rate over the past year?

Use the equation, NOT the approximation (rho= interest rate - inflation) for a "helpful" answer.

The exact answer is -5.45 and the estimate is -6%.

Reference no: EM131191989

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