(i) Explain the concept of a 'Real Rate of Interest'. How does the real rate of...

 

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(i) Explain the concept of a 'Real Rate of Interest'. How does the real rate of interest differ from the notional interest rate charged against (or received) by consumers of financial products? Explain the 'real rate of interest' principle using the example of a client who has $100,000 of their money invested in an 'at call' bank account which is currently paying 0.5% per annum. (8 marks) (i) Explain the concept of a 'Real Rate of Interest'. How does the real rate of interest differ from the notional interest rate charged against (or received) by consumers of financial products? Explain the 'real rate of interest' principle using the example of a client who has $100,000 of their money invested in an 'at call' bank account which is currently paying 0.5% per annum. (8 marks)

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The real rate of interest is the nominal interest rate adjusted for inflation reflecting the actual ... View the full answer