Given that the real risk-free rate is 5%, the rate of inflation is 7%, and the growth in money supply is 9%, what is the exact nominal risk-free rate?
Click on the arrows to vote for the correct answer
A. B. C. D. E.E
The nominal risk-free rate is equal to (1 + RFR) x (1 + I) - I, where RFR is the real risk-free rate and I is the inflation rate. In this question, the nominal risk-free rate is (1.05) x (1.07) - 1 = 0.124 = 12.4%.