Neco 2018 Economics Question 13

Practice objective / multiple choice question 13 from the 2018 Neco Economics examination.

Neco 2018 Economics Objective / Multiple Choice Medium Difficulty
Question 13 NECO • 2018 • ECONOMICS • objective

A savings account offers a nominal interest rate of 12 % per annum. Investors expect inflation of 8 % per annum, but the actual inflation over the next three years turns out to be 10 % per annum. (a) Compute the exact real interest rate using the Fisher equation and the approximate real rate using the simple Fisher approximation. (b) If ₦10 000 is invested at the nominal rate for three years, what is its purchasing power at the end of the period, expressed in Naira to the nearest naira?

Answer Options

Correct Answer A. Exact real rate = 1.818 % (≈ 0.01818); approximate real rate = 2 %. Purchasing power after 3 years ≈ ₦10 560.
B. Exact real rate = 2.0 % (≈ 0.0200); approximate real rate = 2 %; Purchasing power after 3 years ≈ ₦10 400.
C. Exact real rate = 2.2 % (≈ 0.0220); approximate real rate = 3 %; Purchasing power after 3 years ≈ ₦11 200.
D. Exact real rate = 1.5 % (≈ 0.0150); approximate real rate = 1 %; Purchasing power after 3 years ≈ ₦9 800.
Correct Answer
A
Correct Option:
Exact real rate = 1.818 % (≈ 0.01818); approximate real rate = 2 %. Purchasing power after 3 years ≈ ₦10 560.

About This Question

This is Neco 2018 Economics Question 13. It is one of the objective questions from the 2018 Neco Economics examination.

Difficulty level: Medium .

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