The two$-$year interest rate is $10\mathrm{.}4\%,$ and the expected annual inflation rate is $5\mathrm{.}2\%.$

a$.$ What is the expected real interest rate?

b$-1.$ If the expected rate of inflation suddenly rises to $7\mathrm{.}2\%,$ what does Fisher's theory say about how the real interest rate will change?

$b-2.$ If the expected rate of inflation suddenly rises to $7\mathrm{.}2\%,$ what will be the new nominal rate?

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Req B$2$

What is the expected real interest rate?

Note: Do not round intermediate calculations. Enter your answer as a percent rounded to $2$ decimal places.

Expected real interest rate

$\%$The two$-$year interest rate is $10\mathrm{.}4\%,$ and the expected annual inflation rate is $5\mathrm{.}2\%.$

a$.$ What is the expected real interest rate?

b$-1.$ If the expected rate of inflation suddenly rises to $7\mathrm{.}2\%,$ what does Fisher$$s theory say about how the real interest rate will change?

b$-2.$ If the expected rate of inflation suddenly rises to $7\mathrm{.}2\%,$ what will be the new nominal rate?