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Because retail supermarket corporations operate on a low ROR, it is common to use a market MARR of about 3% per year. What real return rate is implied from a market interest rate of 3% per year when the annual inflation rate is 4% per year? Explain your answer.

Respuesta :

ahmedgodtrust

Answer:

Money interest rate (m)  = 3% = 0.03

Inflation rate (i) = 4% = 0.04

Real interest rate (r) ?

(1 + m) = (1 + r)(1 + i)

(1 + 0.03) = (1 + r)(1 + 0.04)

1.03         = (1 + r)(1.04)

1.03/1.04 = 1 +r

0.0004 - 1 = r

             r   =  - 0.0096 = -0.96%

Explanation:

In this case, we need to apply fisher's formula, where money interest rate  and inflation rate have been given with the exception of real interest rate. Thus, we will make real interest rate the subject of the formula.

Parrain

Based on the annual inflation rate, and the market MARR, the real return rate can be found to be -0.96%.

What is the real return rate?

This can be found by the formula:

Market rate = real rate + inflation rate + (inflation rate x real rate)

Solving gives:

3% = real + 4% + 4% x real rate

3% - 4% = 1.4 x real rate

Real rate = 1% / 1.04

= -0.96%

Find out more on the real return rate at https://brainly.com/question/26113005.

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